Oil surged, approaching $100 a barrel, amid speculation unrest in the Middle East and northern Africa will disrupt supplies. U.S. stocks sank on concern rising energy costs will threaten the economic recovery, while Treasurys reversed losses and gold rallied to an all-time high.
Oil for April delivery rallied 1.9 percent to $98.85 a barrel at 1:34 p.m. in New York and gasoline advanced 9.3 percent. The Standard & Poor’s 500 Index slid 1.5 percent to 1,307.63 after yesterday capping a third straight monthly gain. Ten-year Treasury yields lost two basis points to 3.41 percent after rising six points earlier. Gold futures for April delivery climbed as much as 1.7 percent to a record $1,433.40 an ounce.
Oil jumped as unrest threatened to spread from Libya to Iran, OPEC’s second-largest producer. Concern higher energy costs will hurt consumer spending and corporate profits overshadowed data showing that U.S. manufacturing grew at the fastest pace since 2004. Federal Reserve Chairman Ben S. Bernanke said the increase in oil and other commodity prices probably won’t cause a permanent increase in broader inflation, suggesting the central bank will continue its stimulus efforts.
“There’s a cloud over the market,” said Burt White, who helps oversee $284 billion as chief investment officer at LPL Financial Corp. in Boston. “We’ve had very strong manufacturing data,” he said.
“Bernanke said that the fire is not hot enough for the Fed to take the foot off the gas pedal and put it on the brake. They are committed to spur the economy going forward. Still, the market will struggle as people are more concerned about oil than the strength of the U.S. economy.”
Brent crude for April settlement climbed $2.84, or 2.8 percent, to $114.97 a barrel on the London-based ICE Futures Europe exchange. Gasoline 9.3 percent to $2.9827 in New York.
The surge in energy prices overshadowed an increase in the Institute for Supply Management’s manufacturing index to 61.4 in February, the highest since May 2004.
Bernanke said that while sustained rises in oil and other commodities may threaten growth, experience with price gains in recent decades suggests a “temporary and relatively modest increase in U.S. consumer price inflation.”
In his semi-annual monetary policy testimony before the Senate Banking Committee, the Fed chief reiterated the central bank’s outlook that while growth will accelerate this year, he still wants to see a “sustained period of stronger job creation,” suggesting the central bank will stay on course to complete its planned $600 billion of Treasury purchases through June.
Default Swaps Gain
Costs to protect corporate bonds from default climbed after three days of declines. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 2.2 basis points to a mid-price of 84.18 basis points, according to index administrator Markit Group Ltd.
The credit swaps index has increasingly traded in lockstep with oil futures. A measure of correlation between crude futures in New York and the CDX, using 21 days of trading, was 0.59 yesterday and reached the highest since August 2008, according to data compiled by Bloomberg. A correlation of 1, which gauges the percent change of the two contracts, would show they are moving in lockstep, and a minus-1 reading reflects the opposite.
The Stoxx Europe 600 Index fell 0.6 percent, reversing a gain of 0.9 percent, with banks and travel and leisure companies leading declines among 19 groups. The index climbed earlier after European manufacturing growth accelerated to the fastest pace in more than 10 years in February, according to London- based Markit Economics.
The MSCI Asia Pacific Index advanced 1.1 percent for a third day of gains. Japan’s Nikkei 225 Stock Average rose 1.2 percent as Shinsei Bank Ltd. jumped 7.7 percent after Credit Suisse Group AG upgraded shares of lender partly owned by J. Christopher Flowers.
The MSCI Emerging Markets Index climbed 0.4 percent. India’s Bombay Stock Exchange Sensitive Index jumped 3.5 percent, the most since May 2009, after manufacturing expanded at the fastest pace in three months. The rupee strengthened 0.7 percent against the dollar.
The S&P GSCI Total Return Index of commodities jumped 1.7 percent to the highest since November 2008. Cotton, for the third day in a row, jumped the daily limit of 7 cents, or 3.7 percent.
Metals, crops and fuel beat stocks, bonds and the dollar for a third straight month in February, the longest stretch since June 2008, as inflation lifted cotton and cocoa and investors speculated violence in the Middle East and northern Africa will restrain energy supplies. The S&P GSCI Total Return Index of 24 commodities gained 3.8 percent in February and rose for a sixth consecutive month, the longest streak since 2004, data compiled by Bloomberg show.
The MSCI All-Country World Index of equities in 45 nations returned 3 percent including dividends last month, while corporate and government bonds rose 0.21 percent, according to Bank of America Merrill Lynch’s Global Broad Market Index. The U.S. Dollar Index, a gauge of the currency against six counterparts such as the euro and yen, fell 1.1 percent in February.
Today’s surge in crude oil came as Iran, the second-largest producer in the Organization of Petroleum Exporting Countries, arrested opposition leaders to derail protests scheduled today. The European Union yesterday imposed an arms embargo and other sanctions on Libya, and the U.S. said it has frozen $30 billion in Libyan assets.
Saudi Arabia’s Tadawul All Share Index tumbled 6.8 percent, the most since November 2008, as concern deepened political unrest in the Middle East may spread to the kingdom. Arabian authorities “should immediately release” Tawfiq al-Amir a Shiite cleric in the country, who was apparently arrested after he called for a constitutional monarchy and equal rights for Shiites, Human Rights Watch said on its website yesterday.
Kuwait’s benchmark equity index dropped 2.5 percent as state news agency KUNA reported Emir Sheikh Sabah Al-Ahmed Al- Jaber Al-Sabah will address the country today. The Bloomberg GCC 200 Index of Persian Gulf shares fell 3.7 percent.
The krona appreciated against 11 of 16 peers after Stockholm-based Statistics Sweden said gross domestic product expanded 1.2 percent in the three months through December, compared with a 1 percent median estimate in a Bloomberg survey of 17 economists.
© Copyright 2017 Bloomberg News. All rights reserved.