BLBG: Stocks Jump as OPEC Splits Markets; Indian Assets Drop on Attack
Energy shares surge as OPEC announces plan to cut output
Sensex slides after India attacks terror camps in Pakistan
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Stocks rallied in Asia and Europe after OPEC’s surprise announcement of a deal to cut crude output spurred a surge in oil late Wednesday. India’s assets fell after it attacked terrorist targets in Pakistan.
Energy companies led gains on the MSCI All-Country World Index, which is on course for its best quarter since 2013. The ringgit was the best performer among Asian currencies as prospects brightened for Malaysia, Asia’s only major net oil exporter, and the yen slid by the most this month. Sovereign bonds fell amid speculation higher energy prices will revive inflation. After posting its biggest gain in five months, crude slipped under $47 a barrel. India’s rupee fell the most in three months after the biggest military escalation since 1999.
A global oil glut has weighed on crude prices for more than two years, damping inflation, hurting corporate earnings, and leading to negative bond yields in two of the world’s four biggest economies. The Organization of Petroleum Exporting Countries said its members agreed a preliminary deal to trim production to a range of 32.5 million to 33 million barrels per day following informal talks in Algiers, although it won’t decide on targets for each country until a November meeting in Vienna.
“It really caught people on the hop -- we weren’t expecting a cut in output at all,” said Derek Mitchell, a fund manager at Royal London Asset Management in London. His fund owns shares of Royal Dutch Shell Plc and BP Plc and has assets under management of 93.8 billion pounds ($122 billion). “It sends a message that there’s now a floor under the oil price. A tighter oil market will support earnings. There’s rightly a great deal of skepticism as to whether this cut will last, but for the time being, it’s a very nice thing to wake up to.”
Some of the winners from OPEC’s plan include:
Energy markets, from natural gas to coal and carbon were buoyed by the announcement.
The Norwegian krone, the currency of Western Europe’s largest oil producer, touched its strongest level against the euro since August 2015, before giving up gains.
Equity markets in Russia, Dubai, Qatar and Malaysia.
Industrial metals lead and tin climbed to the highest in more than a year, as higher oil prices raise the cost of production.
A global gauge of energy stocks rose. Tullow Oil Plc led gains among European oil-related companies.
Some of the losers from OPEC’s plan include:
Bonds retreated, while measures of the market’s inflation outlook in the U.S. and U.K. climbed.
Travel-and-leisure stocks fell in Europe, with airlines including Deutsche Lufthansa AG leading the drop on prospects of higher fuel costs.
Japan’s yen slumped amid speculation that increased oil costs will help the central bank achieve its policy goals.
Stocks
The MSCI global index gained 0.3 percent as of 1:27 p.m. London time, extending this quarter’s advance to 5.3 percent. A gauge of energy shares jumped 1.5 percent after surging 2.8 percent in the last session.
The Stoxx Europe 600 Index rose 0.5 percent, with oil companies leading the charge. Africa-focused explorer Tullow Oil jumped 9.1 percent, while Total SA and Shell added 3.7 percent or more.
Lenders took their rebound into a second day, with Deutsche Bank AG up 0.9 percent. Commerzbank AG bucked the trend, falling 1.3 percent after announcing plans to cut 9,600 jobs and suspend dividends as Chief Executive Officer Martin Zielke seeks to shore up the German lender’s profitability.
Travel-and-leisure stocks were among the casualties of the OPEC deal, as higher fuel costs make traveling more expensive and erode profits at companies including Lufthansa, which fell 3 percent, and Ryanair Plc, down 2.4 percent. Thomas Cook Group Plc dropped 3 percent.
S&P 500 Index futures fell 0.2 percent, after U.S. shares advanced Wednesday on the back of rising oil prices. PepsiCo Inc. gained 2.7 percent after reporting better-than-estimated third-quarter earnings and raising its annual forecast. Accenture Plc advanced 3.3 percent after its profit and sales beat forecasts.
Reports Thursday showed the number of applications to collect jobless benefits last week rose less than forecast, wholesale inventories slipped 0.1 percent in August, while a revised reading for second-quarter gross domestic product came in at 1.4 percent compared with 1.3 percent earlier. Federal Reserve Chair Janet Yellen is scheduled to speak Thursday, as are regional Fed chiefs for Atlanta, Minneapolis and Philadelphia.
The MSCI Emerging Markets Index advanced for a third day, rising 0.4 percent, with benchmarks in South Africa, Hungary and the Philippines rallying at least 1.7 percent. Russia’s Micex Index climbed 0.8 percent and the Bloomberg GCC 200 index of Gulf stocks added 1.2 percent.
Saudi Arabia’s Tadawul All Share Index fell as much as 1 percent, then rose 1.6 percent. Stocks fluctuated as investors weighed the prospect of the kingdom being sued for its alleged involvement in the Sept. 11 attacks against OPEC’s deal to cut output.
India’s S&P BSE Sensex slid 1.6 percent and the rupee weakened 0.6 percent. Heavy casualties were inflicted on militants assembled to infiltrate India, Director General of Military Operations Ranbir Singh said in a briefing in New Delhi on Thursday. The operations have ended and no more are planned, he said, without elaborating. Pakistan’s army rebuffed India’s announcement, calling the claim of surgical strikes an “illusion.”
China Oilfield Services Ltd. jumped 11 percent in Hong Kong as PetroChina Co., Asia’s biggest oil and gas producer, rallied by the most since May. Hsin Chong Group Holdings Ltd. plunged by as much as 57 percent as the stock resumed trading after Anonymous Analytics rated the property and construction company a "strong sell."
Currencies
The ringgit strengthened 0.4 percent, leading gains among the currencies of oil-exporting nations. The Norwegian krone slipped 0.3 percent following a 1 percent jump in the last session.
South Africa’s rand lost 1.4 percent and Turkey’s lira declined 0.7 percent. Mexico’s peso retreated from near a two-week high before a monetary policy review on Thursday, with most economists predicting interest rates will be raised.
Taiwan also has a central bank meeting and its currency strengthened 0.3 percent from Monday’s close as trading resumed following a hurricane. Just over half of the economists in a Bloomberg survey forecast the island’s borrowing costs will be left unchanged, while the remainder were looking for a cut.
The Bloomberg Dollar Spot Index, a gauge of the greenback versus 10 major peers, rose 0.2 percent from its lowest close in more than two weeks. The yen slid 0.9 percent, among the biggest losers of major currencies, as investors favored higher-yielding assets outside of Japan.
Commodities
Crude oil fell 0.3 percent to $46.92 a barrel, retreating from a three-week high. The lower end of OPEC’s new production target equates to a nearly 750,000 barrels-a-day drop from what the group said it pumped in August. Saudi Arabia and Iran had signaled before the meeting that an agreement was unlikely in Algiers, while all but two of 23 analysts surveyed by Bloomberg predicted there would be no deal.
Goldman Sachs Group Inc. said OPEC’s agreement to cut output could add as much as $10 a barrel to oil prices, though it remains skeptical along with other banks on how the accord will be implemented.
Year-ahead European coal jumped to 20-month high amid increasing import demand from China. The equivalent Dutch gas contract surged to the highest for eight weeks and carbon permits rose to a three-month high. French and German power contracts both advanced to the highest since August 2015 amid reduced availability of French nuclear plants.
Tin gained 0.5 percent to trade just shy of $20,000 a metric ton, a level last seen in early 2015. The metal used for solder in electronics has jumped 17 percent this quarter, the best performance on the London Metal Exchange. Lead rose 1.9 percent, heading for the highest since May last year.
The LME index of six industrial metals is heading for a third successive quarterly gain for the first time since 2011 helped by an improving economy in China, the biggest consumer.
Bonds
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Bond market measures for the inflation outlook climbed from the U.S. to the U.K. following OPEC’s decision. The 10-year break-even rate in the U.K., a measure of inflation expectations derived from the difference in yield between conventional gilts and index-linked securities, was set for its highest close since July last year. A similar measure in the U.S. approached its highest level since June.
The yield on 10-year U.S. Treasuries rose two basis points to 1.59 percent and that for German bunds increased by three basis points to minus 0.12 percent.
“The rise in Treasury yields after the OPEC news was contained because the decision to really cut production won’t be finalized until November,” said Shinichiro Kadota, a foreign-exchange strategist at Barclays Plc in Tokyo. “The Fed’s rate-increase path isn’t gaining momentum, making it unlikely for yields to extend their climb.”
