BLBG: Oil Declines as Spanish Bonds Slide; Azerbaijan Devalues Manat
Auto, mining and technology companies spur Europe equities
Investors weigh outlook for global growth after Fed rate hike
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Brent crude slipped to an 11-year low amid signs the global glut will persist, Spanish stocks and bonds fell after an indecisive election, while European shares advanced. Azerbaijan’s manat plunged after it became the latest oil producer to drop a currency peg.
Oil futures in London slid to the weakest intraday level since July 2004, with drilling in the U.S. increasing as suppliers continue to fight for market share. Spain’s government bonds fell for the first time in four days, while equities plunged amid a surge in trading. Azerbaijan moved to a floating exchange rate to protect its foreign-exchange reserves. Emerging-market equities headed for the fourth gain in five days. U.K. natural gas for delivery next summer fell to the lowest level in at least five years.
Oil has slipped below levels last seen during the 2008 global financial crisis after OPEC effectively abandoned output limits at a Dec. 4 meeting and the U.S. passed legislation to lift a 40-year ban on crude exports. While the Federal Reserve’s rate increase removed a measure of uncertainty on financial markets, investors are still concerned that global growth remains vulnerable. Spain’s weekend election left Prime Minister Mariano Rajoy with limited options to forge a governing majority, threatening a period of instability.
“Oil is setting the tone for the rest of the world,” said Olivier Jakob, managing director at consultants Petromatrix GmbH in Zug, Switzerland. “Oil-producing countries are under increasing risk as their revenue streams dry up. Over the long term, low oil prices will be positive for consumers, but for now we are in a phase where the producing side needs to adapt.”
Commodities
The Bloomberg Commodity Index advanced as gains in metals outweighed declines in oil. Brent crude futures were 1 percent lower at $36.51 a barrel by 11:12 a.m. London time, after a 2.8 percent decline last week. It dropped as low as $36.05 on Monday, the lowest since July 2004.
West Texas Intermediate crude in New York slid 0.9 percent to $34.42 a barrel. Producers are focusing on reducing costs amid the price decline, Qatar Energy Minister Mohammed Al Sada said Sunday at a meeting of Arab oil-exporting nations in Cairo. Drillers in the U.S. put the most rigs back to work since July, adding 17, data from Baker Hughes Inc. showed Friday.
Aluminum for delivery in three months rose 1.1 percent to $1,522 a metric ton and copper gained 0.2 percent to $4,693 on the London Metal Exchange on reported plans for Chinese copper smelters to cut output.
U.K. natural gas for delivery next summer dropped 1 percent to 31.37 pence a therm, the lowest level since the contract started trading on ICE Futures Europe in July 2010. Front-month gas fell 1.1 percent to 33.56 pence a therm, a fourth day of declines, on ICE Futures Europe as above-normal temperatures persisted.
Gold for immediate delivery climbed 0.6 percent to $1,072.08 an ounce, according to Bloomberg generic pricing. While the metal rose 1.4 percent on Friday, it retreated 0.8 percent last week.
Spain
While Rajoy’s People’s Party placed first in Sunday’s election, earning the right to try to form a government, the results suggest the only partner for a majority administration would be historic rivals, the Socialists. The PP returned 123 lawmakers to 90 for the Socialists, as anti-austerity party Podemos placed third with 69 seats. The liberal Ciudadanos party, a possible coalition ally for Rajoy, got 40 seats.
“The election outcome failed to provide us a clear picture of who will take power,” said Anders Moller Lumholtz, chief analyst with Danske Bank A/S in Copenhagen. “It is likely to take time before we get clarity, and uncertainty is not a friend of the market.”
Government bonds tumbled, with yields on Spain’s 10-year securities increasing as much as 18 basis points to 1.87 percent, the highest more than a month. While that’s above the record low of 1.048 percent set in March, it’s still less than a quarter of the 7.75 percent level reached in 2012. The yield difference between Spanish and similar-maturity Italian bonds widening to the most since mid-November.
Monday is the last day of European Central Bank bond purchases until Jan. 4. While Spanish bonds have underperformed most of their peripheral peers this year, the ECB’s bond-purchase plan has insulated Spain’s securities from the type of selloff that characterized the region’s debt crisis.
Bonds of other nations from Europe’s periphery also declined. The yield on Italian 10-year bonds added two basis points to 1.59 percent, and that on similar-maturity Portuguese debt climbed two basis points to 2.5 percent. German 10-year yields were little changed at 0.55 percent. U.S. Treasuries were also little changed, with 10-year yields at 2.21 percent.
Spain’s equity benchmark IBEX 35 Index fell 2 percent, for the worst performance among western-European markets. The volume of shares traded was 29 percent higher than the 30-day average. Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA weighed heaviest, falling at least 2.5 percent.
Stocks
The Stoxx Europe 600 index rose 0.4 percent, reversing earlier losses of as much as 0.5 percent, as miners extended Friday’s rebound amid rising metal prices. Glencore Plc jumped 7.5 percent.
Ericsson AB advanced 6.7 percent, leading gains among technology stocks, after settling a legal dispute with Apple Inc. over mobile-device patents and reaching a licensing agreement that paves the way for cooperation between the two companies.
Daimler AG and BMW AG pushed auto-related shares to among the best performances on the equity benchmark, as persistent euro weakness against the dollar is seen as beneficial to exporters.
Futures on the Standard & Poor’s 500 Index jumped 0.9 percent, indicating equities may rebound, after reemerging global-growth concerns dragged the gauge down 1.8 percent on Friday. The U.S. stock benchmark extended declines in the final 15 minutes of trading and volume soared because of a quarterly event known as quadruple witching, when futures and options contracts on indexes and individual stocks expire.
The MSCI Asia Pacific Index was little changed as the Shanghai Composite index jumped 1.8 percent amid speculation that the government will take steps to improve efficiency at state-owned enterprises. Hong Kong’s Hang Seng index climbed 0.2 percent and South Korea’s Kospi gauge added 0.3 percent. Japan’s Topix index slid 0.4 percent, with Toshiba Corp. leading declines after reports it would post a record 500 billion yen ($4.1 billion) loss in the current fiscal year.
The MSCI Emerging Markets Index rose 0.3 percent as investors turned their attention to countries like China and India where more easing is expected. Stocks are rebounding from a six-year low reached on Dec. 14 as the Federal Reserve’s assurance to make only gradual interest-rate increases boosted risk appetite. The benchmark gauge is still heading for a loss of 17 percent this year.
Currencies
Azerbaijan’s manat plunged 33 percent against the dollar after the nation abandoned the currency peg to protect its foreign-exchange reserves in the wake of continued weakness in oil prices.
Malaysia’s ringgit slid 0.2 percent. Oil prices are hovering below the level assumed by the government in its 2016 budget, Bank of Tokyo-Mitsubishi UFJ said in a note. Indonesia’s rupiah rallied the most in more than a month after the central bank said it expects the currency to be more stable next year.
In South Korea, the won advanced 0.5 percent to 1,177.77 a dollar after the nation’s credit rating was raised one level by Moody’s Investors Service, which cited the nation’s “strong and resilient” credit metrics and prudent fiscal stance.
Japan’s yen dropped 0.1 percent to 121.32 per dollar, after strengthening by 1.1 percent on Friday. The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, was little changed after declining 0.4 percent on Friday.
Hedge funds reduced bets for a third week that the dollar will advance, in the last positioning data before the Fed ended months of uncertainty by raising interest rates for the first time in almost a decade.
Hedge funds cut net dollar long positions by 71,554 contracts to 226,590 in the week through Dec. 15, according to the Commodity Futures Trading Commission. That was the biggest weekly decline since the period ended June 19. The dollar position is calculated by aggregating net positions on eight major currency pairs.
There is a 52 percent probability the Fed will raise its benchmark at its April meeting, and a 70 percent chance at its June gathering, according to data compiled by Bloomberg based on futures. Policy makers increased the rate to a range of 0.25 percent to 0.5 percent on Dec. 16 after keeping it at a record low since December 2008.
