Publications
Partners
Tokyo - Stocks worldwide fell with currencies of commodity-producing nations as oil dropped.
The divergence between onshore Chinese assets and their freely-traded offshore counterparts widened, underscoring the challenge of slowing growth in the world’s second-largest economy.
US futures declined and European stocks fell, extending their worst December drop since 2002 in thin volume on the last full trading day of the year. Equities were weighed down by oil prices, which retraced a rally after industry data showing US stockpiles increased last week.
The Russian ruble, Norwegian krone and South African rand led a retreat in commodity currencies. The freely traded offshore yuan weakened to a five- year low, after China suspended at least two foreign banks from conducting some cross-border transactions until late March, according to people with direct knowledge of the matter.
“We’ll keep on being moved by the oil price,” said Chihiro Ohta, general manager of investment information at SMBC Nikko Securities in Tokyo. “We’ll have to keep being aware of this for the first three months or the first half of next year as well.”
Global equities are heading for their steepest annual drop since 2011, dragged lower as the weakening of China’s economy exacerbates the biggest yearly retreat in commodity prices in seven years. The Bloomberg Commodity Index is down about 25% in 2015, while global bonds lost 2.7%, according to a Bank of America Merrill Lynch index. The S&P 500’s rally on Tuesday left it 1% higher for the year.
US consumer confidence and home-price data that showed the world’s biggest economy continues to strengthen helped boost the dollar and Treasury yields on Tuesday, with data on pending home sales scheduled for release on Wednesday.
Stocks
The Stoxx Europe 600 Index lost 0.1% at 12:25, after climbing 1.4% on Tuesday. The number of shares changing hands was about half the 30-day average. Markets will shut on Friday for New Year. Some including Germany, Switzerland and Italy, will also close Thursday for New Year’s Eve, while others will have shorter trading hours.
European equities are heading for a monthly drop of 4.2%. While they recouped some losses in the final weeks of the year, that hasn’t been enough to overcome a slide earlier this month amid disappointing European Central Bank stimulus measures and a deepening rout in commodity and crude prices. Still, the Stoxx 600 is heading for its fourth straight annual advance.
Germany’s DAX Index declined 0.4% on its final trading day of the year. It has surged 10% in 2015, outperforming the Stoxx 600 and the MSCI All Country World Index. Strategists see more gains for the benchmark in 2016.
Among stocks active on corporate news, Julius Baer Group climbed 1.9% after the Swiss wealth manager said it expects to pay about $547m to settle a US tax investigation. Fingerprint Cards AB, Europe’s best-performing stock this year, climbed 8.6%. The Swedish maker of biometric technology, which will be included in the OMX Stockholm 30 Index next year, has surged almost 1 500% in 2015.
Australia’s S&P/ASX 200 climbed 0.9% for a ninth straight advance, while its New Zealand counterpart gained 0.4% to close a record. Japan’s Topix index added 0.3%. Volumes were at least 20% below average across Asia.
Commodities
Oil fell after industry data showed an unexpected increase in crude inventories last week. West Texas Intermediate dropped 2.4% to $36.96 a barrel and Brent slid 1.6% to $37.17.
The American Petroleum Institute was said to report Tuesday that crude stockpiles rose by 2.9 million barrels last week. Inventories are projected to have dropped by 2.5 million barrels in a separate Bloomberg survey before data published by the US Energy Information Administration on Wednesday.
US natural gas fell after reaching a six-week high Tuesday on forecasts for colder weather. February futures dropped 4.9% to $2.255 per million British thermal units.
Copper in Shanghai rose 1.6% to 36 530 yuan a metric ton, the highest in nearly seven weeks as metals markets in China extended an end-of-year rally. Metals in China have advanced over the past month on speculation that supply cuts and a stabilization of demand may push up prices from multi-year lows. Nine of the biggest copper producers have agreed to cut sales by 200 000 tons in the first three months of 2016, people with knowledge of the matter said Tuesday.
Copper fell 0.2% to $4 721.50 a metric ton in London, while nickel declined 0.4%. Gold was little changed at $1 068.12 an ounce in thin trading.
Bonds
US 10-year Treasuries were higher on Wednesday, with yields dropping one basis point. The rate on the notes jumped eight basis points to 2.31% in the previous session. Demand for government securities is waning as the Federal Reserve begins raising interest rates.
A $35bn sale of five-year debt saw the highest yield at an auction since September 2014, while a gauge of demand fell to the lowest since July 2009. A sale of two-year securities on Monday also drew the lowest level of bidding since 2009. Demand will face another test with the Treasury scheduled to sell $29bn of seven-year securities on Wednesday.
European bonds were little changed. The yield on Australian 10-year notes also rose, adding 12 basis points to 2.8%, even as bond risk in the Asia-Pacific region declined, paring its increase for the year.
The Markit iTraxx Asia index of credit-default swaps fell 2 basis points to 135 basis points, according to prices from Westpac Banking. That leaves it up 29 basis points this year, set for the biggest annual increase since 2011.
Emerging markets
The MSCI Emerging Markets Index fell for a third day, heading for a 17% drop this year, the biggest annual decline since 2011 as lower oil prices drag down commodity producers and concern about the pace of Chinese growth remains. Nine out of ten industry groups retreated with energy shares leading declines.
Chinese shares in Hong Kong extended the biggest sell-off in Asia this year on concern the nation’s deepening economic slowdown will sap corporate earnings. After China’s suspension of cross-border yuan operations, the currency’s exchange rates at home and abroad diverged by the most in three months. The offshore yuan weakened to a five-year low.
“The China market is likely to remain volatile in the first half as growth will slow further and the yuan is expected to weaken,” said William Wong, head of sales trading at Shenwan Hongyuan Group in Hong Kong. “H shares are vulnerable as more US rate hikes will affect the economy in Hong Kong as well as market sentiment.”
Russia’s ruble and the South African rand weakened at least 0.6% versus the dollar, leading declines in emerging currencies, which slid for a third day, taking the gauge of 20 emerging currencies 0.2% lower. The Norwegian krone weakened 0.2% to 8.7372. The onshore yuan will probably drop 3.1% from now by the end of next year, according to analysts’ and traders’ median forecasts in a Bloomberg survey.
