Bloomberg News

Commodities Drop on Chinese Trade Deficit; U.S. Stocks Are Little Changed

March 12, 2012

Oil fell to $106.27 a barrel. Photographer: Daniel Acker/Bloomberg

Oil fell to $106.27 a barrel. Photographer: Daniel Acker/Bloomberg

Commodities snapped a three-day advance and the yuan weakened after Chinese exports grew at a slower pace than forecast, fueling concern about the global economy. U.S. stocks and Treasuries ended little changed.

The S&P GSCI Index of raw materials lost 0.4 percent as of 4:15 p.m. in New York and oil dropped 1 percent. The Standard & Poor’s 500 Index rose less than 0.1 percent to 1,371.09, while Exxon Mobil Corp. and Merck & Co. led the Dow Jones Industrial Average (INDU) up 37.69 points to 12,959.71. Ten-year Treasury note yields added less than one basis point to 2.03 percent. The yen strengthened against 12 of its 16 most-traded peers. The euro climbed 0.3 percent to $1.3158.

China weakened its daily fixing for the yuan by the most since August 2010 after reporting the biggest trade deficit in at least 22 years on March 10, sapping optimism that was spurred last week by stronger-than-forecast jobs data in the U.S. European finance ministers are meeting in Brussels today to complete the 130 billion-euro ($170 billion) aid package for Greece and discuss Spain’s budget-cutting efforts.

“Commodity market watchers have cautioned quite some time ago that ‘as goes China so do commodities,’” Jon Nadler, an analyst at Kitco Inc. in Montreal, wrote in a note today. “When combined with the data concerning that country’s factory output and consumer retail activity, the conclusion that China is indeed experiencing notable difficulties is obviously not very hard to draw.”

Oil Declines

Sixteen of 24 commodities tracked by the S&P GSCI index declined. Oil fell 1 percent to $106.34 a barrel, natural gas declined 2.4 percent to settle at a 10-year low of $2.269 per million British thermal units and copper dropped 0.5 percent to $3.8375 a pound.

Hedge funds last week reduced bets on higher commodity prices for the first time in almost two months after China cut its growth target, just as prices rallied on signs the U.S. economy is improving and Greece is containing its debt crisis.

Premier Wen Jiabao cut China’s economic growth target for 2012 to 7.5 percent, compared with the median estimate of economists for a 2.2 percent expansion in the U.S., according to data compiled by Bloomberg. That would be the smallest gap since the Internet boom in 2000, the data show.

Money managers reduced combined bullish positions across 18 U.S. futures and options by 1.1 percent to 1.17 million contracts in the week ended March 6, Commodity Futures Trading Commission data show. Investors cut bets on copper by the most in two months and those on oil by the most since December.

China Exports

China uses more copper and energy than any other nation and exports from China rose 18.4 percent last month from a year earlier, while imports gained 39.6 percent. Analysts forecast a 31.1 percent increase in overseas sales and that inbound shipments would rise 31.8 percent, based on estimates from Bloomberg News surveys.

The yuan weakened to 6.3266 per dollar for the biggest drop since January. The daily reference rate was set 0.33 percent lower at 6.3282 per dollar. The currency can move 0.5 percent either side of the fixing.

About 5.2 billion shares changed hands on all U.S. exchanges today, the slowest trading session of the year. The Federal Reserve’s policy committee will release its statement on interest rates and the economic outlook tomorrow at 2:15 p.m. Washington time.

Gauges of commodity, energy and financial shares fell at least 0.3 percent for the biggest declines among 10 groups in the S&P 500 while utilities, consumer staples and phone companies had the best gains. JPMorgan Chase & Co. and Bank of America Corp. lost at least 0.8 percent to pace declines among the biggest banks.

Stress Tests

Investors may be disappointed by how U.S. banks perform in Federal Reserve stress tests as examiners expect consumer-loan losses to surpass the industry’s estimates if there’s another severe recession, analysts say.

The Fed generally has predicted firms would suffer greater losses on mortgages and credit cards than what banks estimated in capital plans submitted in January, two people with knowledge of the situation said last week, without identifying specific firms. The divergence may endanger some of the $9 billion in dividend increases and share buybacks analysts estimate may be announced after the Fed releases results this week.

The S&P GSCI Total Return Index of raw materials had rallied 8.8 percent in 2012 through last week, while the S&P 500 had climbed 9 percent in its best start to a year since 1998.

“It’s been a much better start to the year than most investors had expected,” Henrik Drusebjerg, a Copenhagen-based strategist at Nordea Bank AB who helps oversee $230 billion, said in an interview today. “What most of us had expected as a return for the whole year has come around in two months. If there’s anything indicating that global growth is having problems, people will be very quick to take some profits.”

Dow Theory

Transportation and industrial shares are diverging from the rest of the U.S. market, a signal that equity investors are starting to agree with what the bond market already knows: this economic recovery will remain sluggish for months to come.

The Dow Jones Transportation Average (TRAN) fell 3.9 percent from its six-month high on Feb. 3 through March 9, while the Dow Jones Industrial Average added 0.5 percent. The gauge of 20 shipping companies from FedEx Corp. to United Continental Holdings Inc. peaked before the rest of the market when the technology bubble popped in 2000 and began slipping into a bear market three months before broader benchmark indexes in 2007.

Retail sales in the U.S. increased 1.1 percent in February, the most in five months, according to the median estimate of economists in a Bloomberg News survey before Commerce Department figures due tomorrow. Data on March 9 showed nonfarm payrolls increased by 227,000 in February after rising by a revised 284,000 the prior month. The unemployment rate held at a three- year low of 8.3 percent.

European Shares

The Stoxx Europe 600 Index slipped 0.2 percent. Temenos Group AG dropped 4.9 percent after the company terminated merger talks with Misys Plc. Banca Monte dei Paschi di Siena SpA sank 5 percent after its biggest investor reached an agreement with banks that hold part of its stake as collateral on a loan. Mining companies and banks fell more than 1.2 percent for the largest declines of the 19 industries in the Stoxx Europe 600 Index.

The cost of insuring European sovereign bonds rose for a second day, with the Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments climbing 4.4 basis points to an eight-week high of almost 355.75.

The MSCI Emerging Markets Index lost 0.8 percent as stocks in Argentina, the Czech Republic and Taiwan led declines that overshadowed gains in Indian shares after policy makers unexpectedly cut reserve requirements for lenders. The BSE India Sensitive Index, or Sensex, gained 0.5 percent after the central bank on March 9 reduced the amount of deposits lenders need to set aside as reserves to ease a cash squeeze in the banking system.

To contact the reporters on this story: Rob Verdonck in London at rverdonck@bloomberg.net; Debarati Roy in New York at droy5@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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