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Singapore - Oil resumed declines amid further evidence of a global glut, dragging European stocks and US equity index futures lower before the Federal Reserve’s first policy statement this year. European bonds gained.
West Texas Intermediate crude fell toward $30 a barrel after US industry data showed stockpiles increased. European shares deepened a monthly rout as disappointing earnings reports reignited investor concern about global growth prospects, with Apple forecasting its first drop in sales since 2003.
Treasuries slipped, German note yields fell to record lows, and Malaysia’s ringgit climbed to a seven-week high as Prime Minister Najib Razak was cleared in a corruption probe.
This year’s 17% decline in the price of crude has contributed to market upheaval that’s dragged down equities, curbed corporate debt issuance and caused traders to lower their bets on how fast the Fed will move. Investors will scour the US central bank’s Wednesday statement to see whether the violent price swings will cause it to reconsider plans to hike interest rates four times in 2016.
“Nobody is really sure where we go from here, and nobody is brave enough to make the call,” said Peter Dixon, Commerzbank AG’s global equities economist in London.
“Corporate earnings season won’t provide much of a support - markets may find a floor if the Fed is extremely dovish tonight. At least investors will have time to think and reassess valuations.”
Commodities
WTI futures fell 2.6% to $30.64 a barrel by 15:10. Inventories surged by 11.4 million barrels last week, the industry-funded American Petroleum Institute was said to report. Government data Wednesday is forecast to show supplies rose for a third week.
Copper in London fluctuated after its biggest gain in more than five weeks. The LME Index of six base metals on Tuesday rose the most since December 18 following data showing China’s imports of copper and zinc at multi-year records in December.
Independent American oil explorers are forecast to report 2015 losses totaling almost $14bn amid the collapse in energy prices, according to data compiled by Bloomberg. Hess reported its first annual loss in 13 years as it cut spending to weather a prolonged slump in oil prices.
Stocks
S&P 500 emini futures fell 0.4%, while those on the Nasdaq 100 Index declined 0.6%. Apple Chief Executive Officer Tim Cook said on a conference call with analysts that the company is beginning to see “economic softness” in greater China, particularly in Hong Kong.
Apple slid 3.6% in pre-market trading. ARM Holdings, the semiconductor designer whose technology is used in most smartphones, slid 2.5% after the Apple forecasts. Dialog Semiconductor retreated 3.1% and AMS AG dropped 2.9%.
The Stoxx Europe 600 Index slipped 0.5%. The index is heading for a monthly decline of 8%. A measure of volatility in the market has risen 30% in January.
BASF SE lost 3.5% after the world’s largest chemical maker said it will book a €600m charge in the fourth quarter because of lower oil and gas prices. Novartis AG dropped 2.9 percent after the Swiss drugmaker posted quarterly earnings and sales that missed projections.
Bonds
Italy’s government bonds rose for a third day after the nation reached an agreement with the European Commission on a rescue deal that will help banks offload bad debt. Italian 10- year bond yields approached their lowest in eight weeks after the plan, which was initially blocked for months by the Commission, was passed on Tuesday and it was announced that the deal would not count as state aid.
“Italy is in focus due to the agreement between the Commission and the Italian government,” said Daniel Lenz, lead market strategist at DZ Bank AG in Frankfurt. “This was definitely something that helped Italian bonds very much, also the news that the agreement will not have a negative impact on the budget.”
Italian 10-year bond yields fell one basis point to 1.50%. The yield on similar-maturity Spanish bonds declined two basis points to 1.62%.
Germany’s 10-year bund yield was little changed at 0.44%, after touching the lowest since May. Yields on the nation’s two-, three- and five-year securities dropped to record lows.
The yield on US 10-year notes climbed two basis points to 2.02%, with the nation due to sell $35bn of five- year notes on Wednesday. After January’s 1.9% rally in Treasuries, bond bulls are watching for signs that Fed officials expect this year’s oil-price plunge to damp inflation, or any mention of tightening financial conditions resulting from tumult in global stocks and higher-yielding debt.
Even before the January turmoil, fed funds futures were pricing in just two rate increases by year-end. That’s shrunk to about one, and traders see a one-in-four chance the Fed will raise rates at its meeting in March, down from 51% at the start of this year, data compiled by Bloomberg show.
Global corporate bond sales are set for the worst January since 2005, with companies having only issued about $329bn of debt, according to data compiled by Bloomberg. That’s even after Anheuser-Busch InBev NV held the second-largest dollar- denominated sale on record, raising $46bn to fund the takeover of SABMiller.
Currencies
Australia’s dollar strengthened 0.5% to 70.43 US cents. The nation’s trimmed mean inflation measure increased 0.6% last quarter from the prior three months, topping the median analyst forecast for a 0.5% increase.
Malaysia’s ringgit jumped 0.9% in its fourth day of gains, the longest rally since September. There was no evidence of wrongdoing by Najib over a $681m “personal donation” from the Saudi royal family, according to Attorney General Mohamed Apandi.
The money was transferred in early 2013 before the general election, he said, citing investigations by the anti-graft agency. Najib returned $620m in August that year that was not utilized, Apandi said.
Emerging markets
The MSCI Emerging Markets Index rose 1.1% as equity benchmarks in Russia and South Korea jumped at least 1.4%. Gulf shares rebounded, with Saudi Arabia’s Tadawul All Share Index rising 1.1% and Dubai’s DFM General Index climbing 2%.
The Shanghai Composite Index lost as much as 4.1%, before ending the day 0.5% down. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong advanced 0.8%.
Data on Wednesday showed China’s industrial profits slid 4.7% last month, accelerating from the previous month’s 1.4% loss. Strategists and technical analysts point to the growth slowdown as the reason why the Shanghai Composite may keep falling until it levels off around the 2 500 level.
