NEW YORK, March 26 — Oil advanced a fifth day after Saudi Arabia and its allies started bombing targets in Yemen, boosting demand for haven assets from gold to the Swiss franc. US stocks retreated as semiconductor shares fell with airlines.
The Standard & Poor’s 500 Index slid 0.3 per cent at 10:59 a.m. in New York, erasing its gain for the quarter amid four days of losses. SanDisk Corp. tumbled 17 per cent as the chipmaker cut its revenue projection, a day after technology shares led the Nasdaq Composite Index to its biggest drop in 11 months. The Stoxx Europe 600 Index declined 1.3 per cent. US crude rose 1.6 per cent to US$50.034 (RM183.31) a barrel. Gold climbed 0.7 per cent to pace gains among metals.
The S&P 500 erased its 2015 gains as recent data from manufacturing to housing have weakened, raising concern that growth may be slowing at the same time analysts forecast the first contraction in quarterly profit since 2009. The Nasdaq Composite fell a fourth day after climbing to within 10 points of its dot-com-era record on Friday. Yemen has emerged as the latest ground for a proxy fight between Iran and Saudi Arabia, the world’s top oil exporter.
“What we’re beginning to see is a lot of investors doubting the resiliency of the market,” Jeff Sica, president and CEO of advisory firm Circle Squared Alternative Investments, which oversees US$1.5 billion, said in a phone interview. “They’re much less willing to step up after big selloffs. The market is overdue for a correction, so I wouldn’t be in vulnerable stocks like biotechs and semiconductors now.”
Profit contraction
The S&P 500 has fallen 3.4 per cent from its latest all-time high on March 2. It dropped more than 3.3 per cent on two separate occasions in January, only to recover the losses within a week both times. The benchmark equity gauge slipped 3.6 per cent in early March and came within 10 points of reclaiming that level before this week’s four-day selloff.
The gauge is lower for the first quarter after having gone 26 days without posting back-to-back gains, the longest stretch since 1994. It hasn’t fallen more than 10 per cent since October 2011.
Among stocks moving Today, Union Pacific Corp. fell 3.2 per cent, while American Airlines Group Inc. lost 1.9 per cent to lead transportation shares lower. The Philadelphia Stock Exchange Semiconductor Index tumbled 2.8 per cent for a fifth day of losses.
Companies in the index will see a contraction of 5.6 per cent in the period, according to economist estimates compiled by Bloomberg. Alcoa Inc. unofficially kicks off the earnings season when it reports results on April 8.
Data Today showed fewer Americans than forecast filed applications for unemployment benefits last week as improved weather conditions ushered in labor-market stabilization. A report Wednesday indicated durable-goods orders unexpectedly fell in February, following data last week that showed factory production fell and housing starts slowed.
Buyback pause
Atlanta Federal Reserve President Dennis Lockhart still favours raising interest rates from mid-year onward despite some softer readings on growth, although he sees the stronger dollar as a mounting headwind for the economy.
Stocks are also entering a stretch of the year when companies customarily suspend share repurchases before reporting quarterly results, according to Goldman Sachs Group Inc. While the data isn’t conclusive, owning stocks during those periods has generated a return that trails the market average over the past two years, according to data compiled by Bloomberg.
Technology stocks could have the most to lose in the absence of buybacks. Computer and software makers repurchased more shares than any other industry in 2014 at US$122 billion, according to data compiled by Barclays.
Global tension
The MSCI All Country World Index fell for a third day, dropping 0.9 per cent, as global markets reeled after Saudi Arabia led a coalition of 10 Sunni-ruled nations in air strikes against Yemen’s Shiite Houthi rebels. Though Yemen contributes less than 0.2 per cent of global oil output, its location near the center of world energy trade poses a potential for a disruption to shipments.
Gold climbed for a seventh day, the longest run since August 2012, and surpassed US$1,200 an ounce as the bombing increased haven demand. Bullion for immediate delivery, along with silver, platinum and palladium, added more than 1 per cent.
The yen gained 0.3 per cent to 119.147 per dollar, and reached 118.33, the strongest level since Feb. 20. Switzerland’s franc gained 0.1 per cent to 95.859 centimes per dollar. The euro weakened 0.4 per cent to US$1.0927.
Geopolitical risk
“The latest tension in the Middle East adds another geopolitical risk to the market,” said Warut Siwasariyanon, the Bangkok-based head of research at Asia Wealth Securities Co. “It’s extra noise that may prompt investors to reduce their risk positions.”
Rising crude, a stronger yen and falling equity prices are complicating the outlook for Treasuries, as traders assess when, and how often, the Fed will raise interest rates. While the yield on 10-year notes fluctuated near a six-week low, demand dried up at Wednesday’s five-year note sale.
The auction drew a bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, of 2.35, below the average of 2.63 from the previous 10 auctions.
“It tells you people aren’t willing to pay just any price, simply because there are Treasuries out there,” Jim Vogel, interest-rate strategist for FTN Capital Markets in Memphis, Tennessee, said in an interview on Wednesday.
Bonds, Europe
The US 10-year yield added four basis points to 1.97 per cent, according to Bloomberg Bond Trader data. The yield touched 1.85 per cent Wednesday, the lowest level since Feb. 6.
Bonds in Germany were little changed, with the 10-year yield at 0.22 per cent. Italy’s 10-year yield increased one basis point to 1.33 per cent. The US will sell US$29 billion of seven- year notes today.
European shares headed for their biggest two-day slump in almost three months and the largest weekly decline of the year. The Stoxx 600 had rallied 18 per cent this year through the end of last week on optimism that stimulus from the European Central Bank will revive the region’s economy.
Airlines declined amid higher oil prices. International Consolidated Airlines Group SA slipped 5.2 per cent, Deutsche Lufthansa AG retreated 4.1 per cent and Air France-KLM Group lost 3.8 per cent. London Stock Exchange Group Plc sank 9.9 per cent as its largest shareholder, Borse Dubai Ltd., is selling its entire stake.
Dubai stocks headed for the lowest close in more than three months as regional markets fell. The DFM General Index declined to to 3,407.25, the weakest finish since Dec. 17.
Saudi Arabia’s Tadawul All Share Index dropped as much as 4.2 per cent before trading 0.8 per cent lower. The Bloomberg GCC 200 Index, a gauge of the Gulf Cooperation Council’s top 200 equities, slid to the lowest level since Jan. 13. — Bloomberg
