Stocks Stymied as Investors Track Oil Prices – Wall Street Journal

This post was originally published on this site

  • Crude futures drop
  • Bond yields lower
  • U.S. inflation eyed

Stocks around the world extended losses Wednesday, hit by a deepening rout in commodity prices and a weaker dollar.

The Stoxx Europe 600 fell 0.8% in morning trading, led lower by oil-and-gas companies, miners and banks. Asian equities declined across the board while futures pointed to a 0.5% opening loss for the S&P 500 after falling to its lowest close this month on Tuesday.

Energy and materials companies have led losses in recent sessions, pressured by a fall in oil and metals prices. Brent crude oil was last down 1% at $61.60 a barrel after the American Petroleum Institute’s reading of weekly U.S. inventories showed a surprising build in both crude oil and gasoline. The move brought this week’s fall in crude prices to around 3%.

Shares of

Tullow Oil

fell 1.3% in early European trading Wednesday and were down nearly 10% from the start of the week. That comes as energy companies have been the key driver behind U.S. and European earnings growth the third quarter.

As oil prices fall, some investors also worry that lower oil prices could lessen investment plans from the energy sector into other parts of the economy. In the U.S. “essentially all investment we have seen recently appears to have been driven by the energy sector,” strategists at UBS wrote in a note.

Adding to the downbeat tone across risky assets and particularly mining companies, Chinese iron-ore and steel rebar prices fell sharply Wednesday after disappointing economic data from China at the start of the week and figures showing that steel production remained relatively strong in October.

Oil storage tanks  in Cushing, Okla., U.S., on Tuesday, March 24, 2015. Oil prices fell overnight.

Oil storage tanks in Cushing, Okla., U.S., on Tuesday, March 24, 2015. Oil prices fell overnight.


Photo:

Daniel Acker/Bloomberg News

Yields on 10-year Treasurys fell to 2.332% from 2.381% Tuesday, while German yields fell to 0.365% from 0.394%, signaling a rise in prices. Lower commodity prices tend to trim investors’ expectations for a rise in consumer prices, while declines in stock markets often boost haven demand.

Lower bond yields tend to weigh on bank profits, with bank shares in Europe and Japan down on Wednesday.

Investors now price just a 41% chance of another U.S. interest-rate rise by March following one in December, compared with 53.3% on Tuesday, according to CME Group.

Data on U.S. inflation is due later Wednesday. Despite the recent lag in commodity prices, ”I think there’s a developing undertone of inflationary pressure and a need to raise rates,” said Jim Paulsen, chief investment strategist at the Leuthold Group.

While he doesn’t expect that to trigger a bear market in the absence of a recession, support from better-than-expected economic growth is likely to wane, limiting stocks’ upside, he said. This is also coming at a time with a lot of traditional red flags in the market for investors, he added, including “the VIX is too low, the recovery is too old, valuations are too high and the Fed is already raising rates.”

Gains in local currencies also pressured stocks in Europe and Japan on Wednesday. The WSJ Dollar Index, which tracks the dollar against a basket of 16 others, was down 0.3%.

The Stoxx Europe 600 index was on track for a seventh straight day of losses, hit by a steady climb in the euro, with the common currency last trading up 0.4% at $1.1848, reflecting a gain of 1.8% this week alone.

European earnings have lagged behind other regions this quarter, in a move analysts attribute to a 13% climb in the euro against the dollar so far this year.

Japan’s Nikkei Stock Average fell 1.6%, logging a sixth-straight loss in its longest losing streak since May 2016. Oil-and-gas giants

Japan Petroleum Exploration

and Inpex were both down roughly 4%.

The yen also firmed against the dollar and was last up 0.7%, adding pressure to the index. Data showed Japan’s economy grew at an annualized pace of 1.4% in the July-September quarter. The country has now gone nearly two years without a contraction, the longest since 2001.

“Japan has been a real surprise for us this year,” said Andy Flynn, portfolio manager at William Blair, noting the country’s growth has been picking up just as signs have emerged of improving corporate governance.

Chinese stocks were down Wednesday after Tuesday’s release of muted October economic data. The Shenzhen Composite fell 1% and the largely small-cap ChiNext slid 1.5%.

Wednesday’s weakness in Chinese stocks also came amid fears of escalating financial regulations, which have already seen jitters in the bond market in recent days. The 10-year government-bond yield briefly topped 4% this week for the first time in three years. That could result in some funds chasing safer returns, said Shen Zhengyang, an analyst at Northeast Securities.

Hong Kong’s

Hang Seng

was off 1% while Australian shares fell 0.6%.

Yifan Xie

contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Kevin Kingsbury at kevin.kingsbury@wsj.com