BLBG: Oil Falls Below $45 as Stocks, Bonds Rise on Inflation
Oil fell below $45 a barrel in New York, dragging commodities to a 12-year low, and the ruble weakened. Retailers led stocks higher in Europe, while government bonds rose as the outlook for inflation dimmed.
U.S. oil dropped 2.5 percent to $44.92 at 7:12 a.m. in New York, after reaching $44.20. Copper declined 2.8 percent, while the ruble weakened 3.5 percent. The Stoxx Europe 600 Index rose 1.1 percent. Standard & Poor’s 500 Index futures gained 0.6 percent as Alcoa Inc. rose after unofficially kicking off the U.S. earnings season. Yields on 10-year Treasury notes matched the lowest since May 2013. The rate on gilts extended declines after Britain’s inflation rate slowed more than forecast to the lowest level in almost 15 years.
Oil has dropped more than 55 percent since June as the U.S. pumped more shale crude and OPEC resisted calls to cut production, stoking a global supply glut. Declining fuel prices has curbed inflation expectations, cutting the chance of an early Federal Reserve interest-rate increase while boosting speculation the European Central Bank will expand stimulus to ward off deflation.
Oil Prices
“Crude is definitely leading the way down,” Jeremy Baker, a senior commodity strategist who helps oversee about $500 million at Harcourt Investment Consulting AG in Zurich, said by phone. “There doesn’t seem to be any fundamental floor to crude oil prices at the moment. Falling prices will definitely have an economic benefit for U.S. consumers going forward.”
West Texas Intermediate oil extended losses after settling at the lowest level since April 2009 yesterday. Brent crude slid 3.5 percent to $45.79 in London. The Bloomberg Commodity Index retreated 0.4 percent to the lowest level since November 2002.
Crude Stockpiles
U.S. crude inventories probably increased by 1.75 million barrels last week, a Bloomberg News survey showed before government data tomorrow. The United Arab Emirates, a member of the Organization of Petroleum Exporting Countries, will stand by its plan to expand output capacity even with “unstable oil prices,” according to Energy Minister Suhail Al Mazrouei.
Gold rose 0.5 percent to $1,239.49 an ounce, the highest price since Oct. 22, and silver jumped 2.4 percent.
U.S. natural gas increased 3.4 percent to $2.890 per million British thermal units after falling to a 28-month low in New York yesterday. European gas rose 1 percent in London.
Four shares advanced for every one that declined in the Stoxx 600, with a gauge of retailers climbing 2.5 percent. William Morrison Supermarkets Plc up 5.2 percent. The U.K. grocer said its chief executive officer will leave after five years and it reported the steepest decline in holiday sales of all the U.K.’s biggest grocers. Metro AG added 3.4 percent after the German retailer reported an increase in first-quarter adjusted revenue.
Philips Outlook
Royal Philips NV fell 1.3 percent after saying quarterly profit was hurt by production delays at a facility in Cleveland, currency swings and sluggish demand in some markets. Energy and commodity producers also dropped.
S&P 500 futures expiring in March were little changed after the index slid for a second day.
Alcoa rose 2 percent in German trading. The largest U.S. aluminum producer forecast global demand to grow 7 percent this year as automakers use more of the lightweight metal and orders from the aerospace industry accelerate.
JPMorgan Chase & Co. and Wells Fargo & Co. will report earnings on Jan. 14. Profit at S&P 500 companies climbed 2 percent in the fourth quarter, according to the average analyst estimate compiled by Bloomberg.
The MSCI Emerging Markets Index added 0.3 percent as China’s exports beat estimates and oil’s decline spurred gains in consumer-discretionary shares. Russia’s ruble and Malaysia’s ringgit led losses among currencies.
China Trade
Hong Kong’s Hang Seng China Enterprises Index climbed 0.6 percent, the most since Jan. 2, and the Shanghai Composite Index added 0.2 percent, halting a three-day slide.
China’s exports rose 9.7 percent in December from a year earlier, exceeding the 6 percent median estimate in a Bloomberg News survey. Imports fell 2.4 percent, compared with projections for a 6.2 percent decline, leaving a trade surplus of $49.61 billion, the customs administration said in Beijing.
Russia’s dollar-denominated RTS index of stocks lost 3.5 percent, while the Micex advanced 0.4 percent. German Foreign Minister Frank-Walter Steinmeier said after a meeting with his counterparts from Russia, Ukraine and France in Berlin that little progress had been made in four hours of talks yesterday. There was too little agreement on the conflict to go ahead with a proposed summit meeting of the four nations’ leaders in Astana, Kazakhstan, he said.
Credit Risk
The cost of insuring Russian debt rose nine basis points to 609 basis points, the highest level since March 2009, according to data compiled by Bloomberg.
Government bonds rose around the world as lower commodity prices cooled the outlook for consumer prices. Weaker inflation boosted demand for debt by preserving the value of its fixed payments. It may also fuel speculation central banks will extend stimulus, keeping down borrowing costs to fulfill their mandates.
The effective yield on the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index dropped to 1.21 percent yesterday, a record low in data starting in 1996.
U.S. 10-year yields touched 1.8622 percent, matching the low on Oct. 15 that was the least in 20 months. The Treasury will sell $21 billion of 10-year debt today after an auction of three-year notes drew the lowest yield since August yesterday.
Zero Yield
Japan’s five-year yield fell to zero and rates on the nation’s 10-year securities set a record-low. Australia’s 10-year yield declined to 2.603 percent, its lowest level ever.
U.K. 30-year yields fell to an unprecedented 2.251 percent. German bonds also rose, sending 10-year yields two basis points lower to 0.46 percent.
The Netherlands sold 2.85 billion euros ($3.4 billion) of three-year notes at a yield of minus 0.034 percent, meaning investors who hold the securities to maturity will get less back than they paid to buy the notes.
Italy, Austria and Germany are also due to auction debt today, while Portugal is selling securities via banks.
The five-year, five-year forward inflation-swap rate, highlighted by ECB President Mario Draghi in August at a symposium for central bankers, fell to 1.49 percent, set for the lowest close since at least 2004. A bond-market gauge of the outlook for U.K. inflation over the next decade slid to the lowest in more than two years.
The euro weakened 0.2 percent to $1.1806. Sweden’s krona jumped more than 1 percent against the dollar to 7.9753 after a report showed Sweden’s consumer prices fell less than analysts predicted in December.
The cost of insuring European corporate debt was little changed, with the Markit iTraxx Europe Index of credit-default swaps on investment-grade companies at 62 basis points, data compiled by Bloomberg show. The average yield on notes issued by investment-grade companies in euros held at a record 1.09 percent, according to Bank of America Merrill Lynch index data.
To contact the reporters on this story: Nick Gentle in Hong Kong at ngentle2@bloomberg.net; Stephen Kirkland in London at skirkland@bloomberg.net
To contact the editors responsible for this story: Stuart Wallace at swallace6@bloomberg.net; Stephen Kirkland at skirkland@bloomberg.net Stephen Kirkland, Claudia Carpenter
