Thursday, September 11, 2014

U.S. stocks headed for further drops?

By Paul Dobson and Callie Bost

U.S. stocks dropped after Brent crude sank to a two-year low amid signs of excess supply. The ruble slid to a record and European equities fell a fifth day as officials said new sanctions against Russia will come into force tomorrow.

The Standard & Poor’s 500 Index retreated 0.3% at 9:34 a.m. in New York. Brent (NYMEX:SCV14) slid to the cheapest since 2012, sending the Bloomberg Commodity Index to a four-year low. Russia’s currency (CME:R6V13) declined 0.8% to 37.57 per dollar, weakening for a fourth day, while the Micex index dropped 1%. The Stoxx Europe 600 lost 0.3%, while the The MSCI Emerging Markets Index headed for a sixth straight loss. The yield on 10-year Treasury notes fell to 2.51%.

The International Energy Agency cut its global oil demand forecasts a day after OPEC lowered its supply outlook. Initial claims for jobless insurance in the U.S. unexpectedly rose last week. EU countries agreed to implement plans to bar some Russian state-owned defense and energy companies from raising capital in the bloc, while an opinion poll damped bets Scotland would vote for independence. President Barack Obama pledged more air strikes on Islamic State extremists. China’s consumer inflation eased to a four-month low in August.

“All of this goes under the umbrella that any slowing overseas could impact the U.S. economy,” Todd Salamone, senior vice president of research at Cincinnati-based Schaeffer’s Investment Research, said via phone. “Mainly with IEA cutting oil demand forecasts, China with a four-month low in its consumer price index number, and additional sanctions in Russia, it seems like the knee-jerk reaction from a technical and headline perspective is to sell.”

Jobless Data

The S&P 500 (CME:SPZ14) halted a two-day slide yesterday as a rally in Apple Inc. boosted technology shares as investors continued to speculate on the timing of Federal Reserve interest-rate increases. Policy officials next meet Sept. 16-17.

The unexpected gain in jobless claims today interrupted a steady decrease to the lowest level since before the last recession and may boost Chair Janet Yellen’s assertion that slack remains in the labor market.

Energy stocks tumbled for a fourth day, as West Texas Intermediate (NYMEX:CLV14) slid to a 16-month low. Chevron Corp. and Exxon Mobil Corp. dropped at least 0.9%.

The IEA cut its global oil demand forecasts for 2015 and said Saudi Arabia exported the least in almost three years amid slowing purchases from China and Europe. Crude prices are poised to drop next year as U.S. production climbs to a 45-year high, the Energy Information Administration said Sept. 9.

Relentless Campaign

Obama yesterday pledged a “relentless” campaign to destroy Islamic State extremists in Iraq and Syria, with Middle Eastern allies such as Saudi Arabia and Jordan playing crucial supporting roles. The conflict in Iraq, the second-biggest OPEC producer, has spared oil facilities in the south, home to about three-quarters of its crude output.

Treasury 10-year notes (CBOT:ZNZ14) climbed for the first time in six days, pushing yields down from a five-week high. German bonds of similar maturity were little changed, with yields at 1.04%. Spanish securities fell for a fourth day, sending the yield three basis points higher to 2.29%.

“Geopolitical tensions are supporting demand for the least-risky assets,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “Concerns over the growth outlook in China and in Europe, as well as their global implication, also underpin safe-haven demand.”

China Inflation

Chinese consumer prices increased 2% in August, compared with a 2.3% gain in July, and estimates for a 2.2% advance, according to data released today. Chinese producer prices fell 1.2%, more than the 1.1% slip forecast in Bloomberg surveys of analysts.

The Shanghai Composite Index dropped 0.3% and the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slid 0.8%, declining 3.3% in two days, the biggest back-to-back retreat since February.

The MSCI Emerging Markets Index slid 0.5%, headed for the longest losing streak since November as the ruble weakened amid renewed EU sanctions on Russia.

The EU agreed to implement plans to bar some Russian state- owned defense and energy companies from raising capital in the bloc, three EU officials said under condition of anonymity in Brussels. EU governments voted for the sanctions on Sept. 5, delaying their implementation as the cease-fire between Ukraine and Russian-backed separatists began to take hold.

Still Negative

Russia will respond appropriately to the sanctions, Foreign Ministry spokesman Alexander Lukashevich said at a briefing in Moscow.

“The decision was expected, but is still negative,” Dmitry Dorofeev, a money manager from BCS Financial Group in Moscow, said in e-mailed comments on the Russian sanctions. “This may lead to counter-sanctions from the Russian side, as well as a new interest-rate hike.”

The Stoxx Europe 600 Index slipped 0.2%. Royal Bank of Scotland Group Plc advanced 1.4% as a Survation poll yesterday showed weaker support than other surveys had for Scottish nationalists’ bid for independence. Lloyds Banking Group Plc added 1.1% after saying it has a contingency plan for setting up new legal entities in England.

The pound (CME:B6Z14) strengthened against all of its 16 major counterparts, gaining 0.3% to $1.6254.

The Bloomberg Commodity Index of 22 raw materials dropped as much as 0.7% to the lowest since June 2010. Brent declined for a sixth day, falling as much as 1.4% to the lowest since July 2012. Copper slumped 0.9% to $6,810 a metric ton and wheat (CBOT:ZWZ14) fell to the lowest price since July 2010.

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