Bloomberg News

Oil Sinks as Stocks Drop With Treasuries, Metals on Fed Outlook

November 12, 2013

Japanese Yen

The yen dropped as low as 99.53 per dollar, the weakest since Sept. 20. Photographer: Akio Kon/Bloomberg

Crude oil slid to a five-month low and stocks fell, with emerging-market shares extending the longest slump in seven years, as an improving U.S. economy fueled speculation the Federal Reserve will reduce stimulus sooner than estimated. The dollar gained against most major peers and Treasury yields rose while industrial metals declined.

Crude in New York dropped 2.2 percent to $93.04 a barrel, the lowest settlement since May 31. The Standard & Poor’s 500 Index (SPX), which closed within a point of a record yesterday, slipped 0.2 percent, while the MSCI Emerging Markets Index slid for a ninth day. The dollar approached 100 yen for the first time in two months, rising against 11 of 16 major peers. Yields on 10-year Treasuries climbed as much as four basis points to 2.79 percent. Silver sank 2.9 percent while natural gas surged.

Treasury yields (USGG10YR) have jumped and the dollar has gained since last week’s better-than-forecast U.S. jobs data fueled speculation policy makers will trim stimulus earlier than expected. Fed Bank of Atlanta President Dennis Lockhart told Bloomberg Radio that a reduction in bond purchases “could very well take place” next month. Dallas Fed President Richard Fisher, who has said he wouldn’t rule out backing a reduction in asset buying by March, said in a speech in Melbourne that monetary accommodation “becomes riskier by the day.”

“The jobs report Friday, that’s really what changed the idea that we could have a December taper and ever since then you’ve had more and more comments coming out of the Fed that perhaps it is on the table,” James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $340 billion, said in a phone interview. “Last night it was Fisher and now Lockhart. What he came out and said today isn’t earth-shattering but it does add to the momentum to the idea.”

Inflation Target

Lockhart said he wants to see inflation accelerate toward the Fed’s 2 percent goal before the central bank reduces $85 billion in monthly bond purchases.

The Federal Open Market Committee will probably taper its bond buying to $70 billion at its March 18-19 meeting, according to the median of 32 economist estimates in a Bloomberg News survey Nov. 8. The poll came after a government report that showed employers last month increased payrolls by a more-than-expected 204,000 workers, and the economy grew at a faster-than-forecast rate of 2.8 percent last quarter.

The S&P GSCI Index (SPGSCI) of 24 commodities slid 0.8 percent, led by silver and crude, while coffee, natural gas and soybeans jumped more than 1 percent. Natural gas futures climbed for a sixth day in New York, adding 2.1 percent to cap the longest rising streak in more than a year, as meteorologists predicted colder-than-normal weather that would stoke heating-fuel demand.

IEA Report

The U.S. will surpass Russia and Saudi Arabia as the world’s top oil producer by 2015, and be close to energy self-sufficiency in the next two decades, amid booming output from shale formations, the International Energy Agency said.

Crude prices will advance to $128 a barrel by 2035 with a 16 percent increase in consumption supporting the development of so-called tight oil in the U.S. and a tripling in output from Brazil, the IEA said today in its annual World Energy Outlook. The role of the Organization of Petroleum Exporting Countries will recover in the middle of the next decade as other nations struggle to repeat North America’s success with exploiting shale deposits, the agency predicted.

Six of the 10 main industry groups in the S&P 500 declined today, led by utility, financial and energy companies. The index advanced 0.1 percent yesterday to 1,771.89, near its Oct. 29 record of 1,771.95. The S&P 500 is up almost 24 percent in 2013, poised for its best yearly gain in a decade, and is trading near its highest price-to-earnings valuation in more than three years.

U.S. Movers

Travelers Cos., Chevron Corp. and Johnson & Johnson lost at least 0.8 percent to lead the Dow Jones Industrial Average (INDU) lower after it closed at a record yesterday.

News Corp. (NWS:US) dropped 1.6 percent as the publisher of the Wall Street Journal reported a decline in revenue. T-Mobile US Inc. retreated 3.3 percent after offering almost $1.8 billion in new stock. Dish Network Corp. rose 6 percent as the second-largest U.S. satellite-television provider’s earnings exceeded estimates.

Thirty-year Treasury bond yields rose one basis point, or 0.01 percentage point, to 3.86 percent after earlier climbing as much as four basis points. U.S. government debt is becoming increasingly perilous to options traders who are pushing up the cost to protect against sudden losses by the most in a year.

Market ‘Convinced’

The cost to lock in fixed-interest rates that are a half-percentage point above 10-year yields is now about 17 percent higher than contracts tied to prevailing rates, according to data compiled by Deutsche Bank AG. The premium for the three-month options has risen from this year’s low of 10 percent in June, signaling growing demand for protection from the risk U.S. borrowing costs will start rising before March. The increase was the biggest since 2012.

“People in the market seem to be convinced that the Fed’s tapering will happen sooner rather than later and that’s showing in long-dated Treasury yields,” said Peter Osler, head of interest-rates strategy at broker Marex Spectron Group Ltd. in London. “Economic reports suggested that, unlike in Europe, economic recovery in the U.S. is more solid.”

The dollar appreciated 0.5 percent to 99.67 yen after reaching 99.80, the strongest level since Sept. 13. The greenback slipped 0.2 percent to $1.3435 per euro, while the 17-nation shared currency advanced 0.7 percent versus the yen. The Bloomberg U.S. Dollar Index, a gauge of the currency against 10 major peers, pared gains to 0.1 percent after jumping as much as 0.4 percent to a two-month high.

Krona Sinks

The Swedish krona weakened against all of its 16 major counterparts after the country unexpectedly returned to deflation last month. The pound declined as much as 0.8 percent to $1.5855, the lowest level since Sept. 13, after U.K. inflation slowed more than forecast in October.

Germany’s 10-year bund yield rose 3.6 basis points to 1.79 percent, the highest since Oct. 23. Italy’s one-year borrowing costs fell to a record of 0.688 percent at a sale of 6.5 billion euros ($8.7 billion) of bills. The yield on 10-year Italian bonds rose 2.5 basis points to 4.15 percent.

Basic-resource companies and financial-services shares posted the biggest losses in the Stoxx Europe 600 Index, which slipped 0.6 percent. The European benchmark has climbed 15 percent this year and closed yesterday at the highest since May 2008.

Emerging Markets

Norsk Hydro ASA slumped 5.5 percent, the most in almost two years, after Vale SA sold a stake in the aluminum maker. Infineon Technologies AG dropped 5.6 percent after Europe’s second-largest semiconductor maker predicted a decline in profitability. Swiss Life Holding AG (SLHN) rallied 5.1 percent to a five-year high as Switzerland’s biggest life insurer reported increased sales and named a new chief executive officer.

The MSCI Emerging Markets Index lost 0.2 percent for a ninth straight daily decline, its longest slump since 2006. Indonesia’s Jakarta Composite Index dropped 1.4 percent after the central bank unexpectedly raised interest rates. Benchmark gauges in Argentina, Brazil and Colombia lost more than 1.5 percent to lead declines.

The Shanghai Composite Index climbed 0.8 percent while the Hang Seng Index in Hong Kong retreated 0.2 percent before the conclusion of a four-day Communist Party meeting.

China elevated the role of markets in the nation’s economic strategy after President Xi Jinping oversaw a gathering of Communist Party leaders while stopping short for now of unveiling detailed policy shifts.

The nation will make markets “decisive” in allocating resources, according to the communique from the third full meeting, or plenum, of the party’s 18th Central Committee. At the same time, state-owned enterprises will remain “dominant,” indicating limits on rolling back government involvement.

To contact the reporters on this story: Aubrey Pringle in New York at apringle1@bloomberg.net; Michael P. Regan in New York at mregan12@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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