European shares rebound as crude erases losses
LONDON, Aug 11 — European stocks rebounded as oil erased losses after the International Energy Agency said pent-up demand would absorb record crude output.
The Stoxx Europe 600 Index rose 0.4 per cent, with miners and energy producers trimming losses, as crude recovered from a drop of as much as 1.5 per cent after the IEA forecast. Asian equities pared losses. New Zealand’s dollar surged to a one-year high after the country’s central bank cut interest rates and signaled a more gradual easing path than some investors had anticipated. Nickel snapped a four-day advance. Ukraine’s 2019 Eurobond fell the most since June amid signs tension is increasing with Russia.
Crude entered a bear market last week and the outlook remains clouded as Saudi Arabia and Iran refuse to give ground in their war for market share, with both boosting output just days after Opec announced an informal meeting to discuss ways to stabilize falling prices. Exacerbating the problem is global demand, which remains weak even as policy makers from Frankfurt to Tokyo engage in unprecedented stimulus to boost their economies. A strengthening jobs market in the US has yet to convince traders that the world’s biggest economy is strong enough for the Federal Reserve to raise interest rates this year.
“The big topic in the oil market is simply that the supply glut persists,” said Norbert Ruecker, head of commodity research at Julius Baer Group Ltd. in Zurich. “The Gulf nations have seen their petrodollar revenues collapse, and one way to revive cash flow is simply to produce more oil. When you see oil prices heading into the US$40s, there is a bit of negative spillover.”
A gauge of UK home sales pointed to the fastest decline in transactions since the global financial crisis in 2008, Royal Institution of Chartered Surveyors data showed today. Singapore cut the top end of its 2016 growth forecast after the economy expanded less than previously estimated in the second quarter. Financial markets in Japan were shut for a holiday.
West Texas Intermediate crude was little changed at 11:55am in London, after sinking 2.5 per cent yesterday when official data showed US supplies increased by 1.06 million barrels last week.
The IEA said in its monthly report that an increase in the volume of crude processed this quarter will shrink brimming stockpiles even as Saudi Arabia, Kuwait and the United Arab Emirates pump at all-time highs. The updated outlook comes a day after the Organization of Petroleum Exporting Countries said weakness in global crude markets may persist as demand slows seasonally and fuel inventories remain abundant.
Saudi Arabia, the world’s largest crude exporter, boosted oil output to a record 10.67 million barrels a day in July, according to Opec data published yesterday. In Iran, production has risen to 3.85 million barrels a day — the highest since 2008 — according to comments from Oil Minister Bijan Namdar Zanganeh reported by the Fars news agency.
Weak oil hurt sentiment on demand for commodities, ending a four-day rally in nickel. The metal dropped 0.8 per cent to US$10,775 a metric ton after Monday touching a one-year high. Zinc fell 0.1 per cent and tin lost 0.7 per cent.
“Crude oil’s damping market sentiment for metals,” Zhao Qiannan, an analyst with Beijing Newnie E-commerce Co., said by phone from Shanghai.
TThe Stoxx 600 rebounded from a decline of as much as 0.2 per cent, as gauges of miners and oil companies came off session lows. The number of shares changing hands was about a third less than the 30-day average.
Zurich Insurance Group AG added 4.3 per cent after saying earnings fell less than projected. KBC Group NV advanced 4.9 per cent after posting better-than-expected profit and revenue and cutting its forecast for 2016 loan-loss provisions in Ireland. K+S AG, Europe’s biggest potash producer, slipped 8.8 per cent after saying it expects lower earnings in 2016.
S&P 500 futures rose 0.3 per cent after the underlying equity benchmark declined 0.3 per cent yesterday, retreating from a near-record high. Investors will look Thursday to earnings from retailers including Macy’s Inc. for indications of the health of the American consumer.
Stocks have benefited from better-than-forecast earnings this season, particularly among technology companies. With about 90 per cent of S&P 500 members having posted results, 78 per cent have beaten profit predictions and 56 per cent have topped sales projections.
The MSCI Asia Pacific excluding Japan Index fell less than 0.1 per cent, trimming losses of as much as 0.4 per cent. Australia’s S&P/ASX 200 Index dropped 0.6 per cent as benchmarks lost ground in Shanghai and Taiwan.
Hong Kong’s Hang Seng Index climbed 0.4 per cent, led by financial companies, after the head of the city’s bourse operator told CNBC an exchange trading link with the Chinese city of Shenzhen will soon be announced. Hong Kong Exchanges & Clearing Ltd. jumped 2.9 per cent, its biggest increase since May.
The MSCI Emerging Markets Index slipped less than 0.1 per cent after advancing five days to the highest close since July 2015. Gulf stocks declined today, with the Bloomberg GCC 200 Index losing 0.2 per cent, trimming this week’s gain to 1.6 per cent.
The kiwi rose as high as 73.41 US cents, its strongest level since May 2015, before trading 0.7 per cent stronger on the day at 72.59. The Reserve Bank of New Zealand reduced its key rate by 25 basis points to 2 per cent. While the cut was expected by all 16 economists surveyed by Bloomberg, the swaps market had priced in a 20 per cent chance of a half-point reduction.
“Even though the 25 basis-point rate cut was fully priced in, there was uncertainty that the RBNZ could even have opted for a 50 basis-point rate cut,” said Angus Nicholson, a market analyst in Melbourne at IG Ltd. “Once the 50 basis-point fears turned out to be unfounded the kiwi dollar promptly rallied.”
Bloomberg’s dollar index, a gauge of the greenback versus 10 major peers, rose 0.1 per cent. It ended the last session at a seven-week low as the probability of a US interest-rate increase this year slipped by four percentage points to 41 per cent in the futures market.
The Swedish krona was little changed, erasing gains after touching the strongest level against the dollar in more than a month, following better-than-expected July inflation data today.
The MSCI Emerging Markets Currency Index dropped 0.1 per cent. South Korea’s won snapped a five-day advance, weakening 0.5 per cent after reaching its strongest level in more than a year yesterday. Bank of Korea Governor Lee Ju Yeol kept the benchmark interest rate at 1.25 per cent and said the authority has scope for more policy adjustments. The ringgit slid 0.4 per cent as lower crude prices dimmed prospects for Malaysia, the region’s only major net oil exporter.
The MSCI currency gauge has climbed 3.6 per cent since China’s surprise yuan devaluation a year ago roiled global markets. Brazil’s real led gains in the past 12 months, up 11 per cent, followed by South Korea’s won with a 7.2 per cent jump. The biggest loser was Argentina’s peso, declining 37 per cent after the country scrapped currency controls. The yuan has dropped 4.8 per cent in the period.
The yield on US Treasuries due in a decade rose two basis points to 1.52 per cent. It fell yesterday as 10-year notes were auctioned at the lowest yield in four years amid near-record demand from a group of buyers that includes foreign central banks and mutual funds. The US is scheduled to sell US$15 billion (RM59.9 billion) of 30-year bonds today.
UK 10-year bonds added two basis points to 0.54 per cent. Gilts have been boosted this week on signs the Bank of England may need to pay higher prices to purchase enough to meet the target for its expanded quantitative-easing program.
Ukraine’s 2019 Eurobond fell the most since June 27, sending the yield up 39 basis points to 7.85 per cent. Officials in Kiev warned that Russia’s accusation that its agents engaged in “terror” tactics in Crimea may be a ploy to justify the Kremlin escalating the military conflict as fighting between Ukrainian forces and Russian-backed separatists intensified in the country’s east. Russia’s rouble slipped 0.2 per cent.
Yields on Australian bonds due in a decade fell for a third day, declining by two basis points to 1.85 per cent. New Zealand’s two-year bonds fell and its 10-year notes advanced, flattening the so-called yield curve, following the central bank’s policy meeting. — Bloomberg