- Saudi Aramco comments on investments weaken oil prices
- Yen strengthens as gold, Treasuries advance on haven demand
The Standard & Poor’s 500 index extended declines in late-morning trading as American crude’s slide approached 5 percent, undoing part of a 21 percent surge to end last week. U.S. and European followed oil lower after rising in its wake at the end of last week, while yields on 10-year Treasury notes fell three basis points 2.02 percent. The Russian ruble fell against all of its 31 major counterparts, while gold futures jumped 1 percent.
Even after last week’s recovery, crude has fallen about 16 percent this year amid brimming U.S. stockpiles and the prospect of additional Iranian exports. Lower oil prices have amplified concern global growth is slowing as they also point to weaker industrial demand. With energy and commodity companies sliding, a measure of the correlation between global stocks and oil prices over the past 120 days has climbed to 0.5, the highest since 2013.
“A weaker oil market to start the day is going to take a little bit of the bloom off the rose from last week’s rally,” said Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles. “The market’s going down with the price of oil, that’s been the way it’s been trading. We’re certainly due for a little pullback given the massive upside we saw.”
The S&P 500 fell 0.8 percent at 11:17 a.m. in New York, after a 2 percent rally on Friday. Equities are on track for their worst January since 2009 amid worries that China’s slowdown will weigh on global growth, with plunging oil prices exacerbating those concerns. The S&P 500 sank to a 21-month low last week before rallying.
Halliburton Co. declined Monday after posting a quarterly loss, and Exxon Mobil Corp. slide following crude’s biggest two-day rally in more than seven years. McDonald’s Corp. gained after the fast-food giant’s earnings beat analysts’ forecasts. Tyco International Plc surged 8.6 percent after Johnson Controls Inc. agreed to merge with the company.
In Europe, Banca Monte dei Paschi di Siena SpA was little changed after a 47 percent rally in the previous two sessions. Greece’s ASE Index climbed 0.6 percent after Standard & Poor’s upgraded the country to B- from CCC+, with a stable outlook.
West Texas Intermediate dropped as much as 4.1 percent. Saudi Arabian Oil Co. is maintaining investment in oil and natural gas projects as it studies options to sell shares in its parent company and refining and chemical operations, Chairman Khalid Al-Falih said Monday. The state-run producer, known as Saudi Aramco, can sustain low oil prices for “a long, long time,” he told reporters in Riyadh.
Gold advanced as investors weighed the prospects of the metal as a haven. Bullion for immediate delivery rose 0.6 percent to $1,104.40 an ounce, according to Bloomberg generic pricing. The metal climbed 0.8 percent last week as turmoil in global stocks renewed interest in the metal as a store of value.
Copper in London added 0.2 percent to $4,451.50 a metric ton, while nickel dropped 0.7 percent to $8,640 a ton.
The yen halted a two-day decline after Bank of Japan Governor Haruhiko Kuroda showed little appetite for an immediate expansion of stimulus as the central bank prepares to set policy this week.
Japan’s currency has gained versus all its 16 major counterparts since the start of the year as a China-led stock selloff and a tumble in oil prices spurred demand for haven assets. Hedge funds and other large speculators raised net bullish yen positions to the highest in almost four years last week. The BOJ is scheduled to meet Jan. 28-29 and announce its monetary-policy decision on Jan. 29.
Kuroda said in an interview on Jan. 22 in Davos, Switzerland, that “we don’t think the current market situation has been affecting corporate behavior unduly.”
The Canadian dollar and Mexico’s peso declined with the ruble as currencies of commodity producers fell with crude. South Korea’s won strengthened 0.5 percent before data forecast to show South Korea’s economic growth quickened.
U.S. Treasuries rose for the first time in three days. The Federal Open Market Committee is set to announce its next rate decision on Jan. 27, though traders aren’t pricing in the probability of the next increase until September.
“We saw a pretty simultaneous slump in oil and equity futures,” said John Davies, an interest-rate strategist at Standard Chartered in London. “U.S. Treasury yields took the cue accordingly and the curve has bull flattened in response,” he said referring to longer-dated bond yields falling faster than those on shorter-maturity debt.
The 10-year note yield fell two basis points to 2.03 percent, according to Bloomberg Bond Trader data. The 30-year bond yield declined three basis points to 2.80 percent. The yield on 10-year German bonds was one basis point lower at 0.48 percent.
The cost of insuring investment-grade corporate debt was little changed, with the Markit iTraxx Europe Index of credit-default swaps holding at 93 basis points. The non-investment grade Markit iTraxx Europe Crossover Index was also little changed at 371 basis points.
The MSCI Emerging Markets Index rose 0.8 percent. Benchmarks in Taiwan, Indonesia and the Philippines climbed more than 1 percent while shares in the Gulf fell with oil.
The Shanghai Composite Index advanced 0.8 percent and the Hang Seng China Enterprises Index of mainland shares in Hong Kong also climbed 0.8 percent. The Shanghai gauge, whose gyrations at the start of the year sparked the global selloff, ended up 1.3 percent on Friday as China signaled it would curb overcapacity in industries such as coal that have been dragging down economic growth.
China has lowered steel production by about 90 million tons “in recent years” and will push to cut a further 100 million to 150 million tons, while “strictly controlling” steel capacity increases and halting new coal mine approvals, according to a Sunday statement on the Chinese government’s website, citing a State Council meeting on Jan. 22 chaired by Premier Li Keqiang. No time line was mentioned.
The Bloomberg GCC 200 Index of equities in the Gulf slipping 0.5 percent. Benchmarks in Abu Dhabi and Dubai lost at least 0.6 percent.