Bloomberg News

Oil Drops as U.S. Stocks Halt Six-Day Rally; Copper Gains

June 23, 2014

Chinese Manufacturing Expands

Workers assemble pens at the A.W. Faber-Castell (Guangzhou) Stationery Co. factory in Guangzhou. China’s factory activity is increasing for the first time since December, with a preliminary purchasing manager’s index rising to 50.8, HSBC Holdings Plc and Markit Ltd. said. Photographer: Brent Lewin/Bloomberg

Oil slumped the most in more than a month as Iraq’s army recaptured territory from militants. U.S. stocks ended a six-day rally and European equities fell as data showed weakness in euro-area manufacturing and services.

Brent crude slipped 0.6 percent from its highest level in almost nine months. The Standard & Poor’s 500 Index dropped less than 0.1 percent, after closing at a record last week. The Russell 2000 Index of smaller companies lost 0.3 percent and the Stoxx Europe 600 Index fell 0.5 percent. Yields on 10-year Treasuries rose two basis points to 2.63 percent. Copper futures rose 0.9 percent and zinc added 0.5 percent as Chinese factory output beat estimates. Dubai stocks entered a bear market.

Euro-region manufacturing and services activity retreated this month, while Chinese factory production rose to a seven-month high. Iraqi forces regained control of border crossings into Syria and Jordan, state-sponsored Iraqiya TV reported, citing the defense ministry. Purchases of previously owned U.S. homes rose more than projected in May, a sign the industry is stabilizing after a weather-depressed quarter.

“You’re sitting up at all-time highs and you do have a geopolitical situation remaining out there that’s weighing on the market,” Bill Stone, chief investment strategist at PNC Wealth Management, said in a phone interview. He helps oversee $131 billion in assets under management. “If you have to find something that’s a drag right now it’s the European PMIs that failed to provide a lift to the market. Europe’s out of the worst of it but it’s unclear if the economy is still stagnant.”

European Economy

The euro-area PMI composite gauge slipped to 52.8 in June, trailing the 53.4 median of 25 estimates in a Bloomberg survey of economists, amid a slowdown in France’s economy.

The euro area is struggling to sustain a recovery that received a bleak assessment from the International Monetary Fund June 20. Earlier this month, the European Central Bank introduced a negative deposit rate, announced targeted loans to stimulate lending and held out the prospect of asset purchases to stoke growth and inflation in the 18-nation region.

In Iraq, government forces took back the Al Waleed border crossing into Syria and the Traibil passageway near Jordan, Iraqiya reported. Fighters from the Islamic State in Iraq and the Levant were earlier reported to have seized the borders. Fighting in Iraq, OPEC’s second-biggest producer, hasn’t spread to the south, home to more than three-quarters of the nation’s output.

Oil Regions

“At these levels we really need to see further disruption to get another rally,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The militants have not gotten anywhere near the oil-producing regions.”

Brent crude futures fell the most since May 16 to $114.12 a barrel. The grade rose to $115.71 June 19, the highest level since Sept. 9. West Texas Intermediate slid 1 percent today to $106.17 per barrel.

In Baghdad, U.S. Secretary of State John Kerry met with Prime Minister Nouri al-Maliki, as well as ministers and party leaders. He told reporters after the talks that Iraq faces an “existential threat,” and said U.S. support “will be intense, sustained, and if Iraq’s leaders take the necessary steps to bring the country together, it will be effective.”

The S&P 500 (SPX) rose 1.4 percent last week, the most in two months, closing at an all-time high of 1,962.87 June 20. The gauge is set for an increase of 4.8 percent in the quarter and is up 8.1 percent from a low reached April 11 as data showed the U.S. economy is recovering from extreme weather and the first drop in first-quarter gross domestic product since 2011.

Home Sales

A report today indicated sales of previously owned U.S. homes climbed 4.9 percent to a 4.89 million annualized rate, the most since October, after a 4.66 million pace in April. Prices increased at the slowest pace in more than two years.

Separate data from Markit Economics showed a measure of U.S. manufacturing rose to 57.5 in June from 56.4 in May. Economists in a Bloomberg survey projected a decline to 56.0, with readings above 50 signaling expansion.

Federal Reserve Chair Janet Yellen said last week accommodative monetary policy, rising property and equity prices and the improving global economy should lead to above-trend growth. Yellen emphasized the need to put more Americans back to work and downplayed concerns about asset-price bubbles and incipient inflation.

Stock Swings

The Chicago Board Options Exchange Volatility Index, a gauge of S&P 500 options prices known as the VIX (VIX), rose 1.2 percent to 10.98 today. The measure is trading near its lowest level since 2007. The U.S. equities market is experiencing its smallest swings of the year. The S&P 500 moved 0.25 percent point from its highest and lowest points today. That followed a swing of 0.24 point June 20, the narrowest movement in more than 20 years besides a 0.20 point reading in December.

Companies tied to mergers were active today. Integrys Energy Group Inc. jumped 12 percent after Wisconsin Energy Corp. agreed to pay $5.7 billion for the company. Micros Systems rose 3.4 percent as Oracle Corp. offered to buy it for a $68 a share. General Electric Co. fell 1.1 percent after clinching the $17 billion purchase of Alstom SA’s energy assets, its biggest acquisition ever.

Fifteen of the 19 industry groups in Europe’s Stoxx 600 fell, with trading volumes 18 percent below the 30-day average, data compiled by Bloomberg show. The European gauge gained 0.3 percent last week, closing 0.5 percent short of a six-year high.

China Manufacturing

The S&P GSCI gauge of commodities climbed as much as 0.6 percent today to the highest level since Aug. 28, before erasing gains and dropping 0.5 percent as oil slid. Copper futures rose a seventh day to $3.142 a pound for the longest streak of increases since December. Zinc rallied 0.5 percent to the highest level since February 2013.

A preliminary purchasing managers’ index for manufacturing in China, the biggest consumer of industrial metals, rose to 50.8, exceeding the 49.7 median estimate of analysts in a Bloomberg survey, according to a report by Markit Ltd. and HSBC Holdings Plc. It’s the first time the gauge has delivered a reading over 50, which indicates expansion, since December.

The Australian dollar strengthened against 14 of its 16 major peers, climbing 0.4 percent to 94.22 U.S. cents after touching 94.45, the strongest price since April 10. New Zealand’s currency advanced 0.2 percent to 87.12 U.S. cents after reaching 87.49, the most since May 6. China is Australia and New Zealand’s biggest trading partner.

Emerging Markets

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major counterparts, declined 0.1 percent. The gauge fell for a fourth day, the longest streak of daily losses since the period ending April 30.

The euro weakened against all but three of its 16 major counterparts, slipping 0.1 percent versus the yen.

The MSCI Emerging Markets Index declined 0.2 percent. India’s Sensex dropped 0.3 percent. Dubai’s benchmark gauge retreated 4.3 percent by the close, extending declines from a peak in May to more than 20 percent, the threshold for a bear market.

The ruble gained 1 percent versus the dollar while Russia’s Micex Index closed unchanged. Russian President Vladimir Putin voiced support June 21 for a cease-fire in Ukraine declared by the former Soviet republic’s new president, Petro Poroshenko.

The rate on 10-year Treasury notes rose to near the highest level compared with equivalent German bonds in 15 years, with the U.S. preparing to sell $107 billion of coupon-bearing debt this week.

Treasury two-year notes yielded the most in three years in pre-auction trading before the U.S. sells $30 billion of the securities amid speculation the Fed is on pace to raise interest rates next year.

“As the market slowly prices in a potential rate hike, we are creeping up in yield in the front end,” said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald LP in New York, one of 22 primary dealers that trade with the Fed. “If the data continues to hold steady, rate hike expectations will continue to push up the two-year note yield.”

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Oliver Renick in New York at orenick2@bloomberg.net

To contact the editors responsible for this story: Stuart Wallace at swallace6@bloomberg.net; Lynn Thomasson at lthomasson@bloomberg.net Jeff Sutherland, Emma O’Brien


Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus