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Stocks Slip Amid Credit Market Weakness With Oil Near $35

Image: Stocks Slip Amid Credit Market Weakness With Oil Near $35

Monday, 14 Dec 2015 11:12 AM

U.S. stocks extended a 10-week low as crude remained at its cheapest since 2009 and credit markets weakened further two days before the Federal Reserve is anticipated to raise interest rates.

The Standard & Poor’s 500 Index fell for the fifth time in six days as resource producers resumed losses after oil dipped below $35 per barrel. An exchange-traded fund that tracks junk debt fell to the lowest since 2009, as two high-yield funds suspended redemptions last week and a third said Monday it had liquidated its entire portfolio. Shares in Europe dropped to a 10-week low, while emerging assets tumbled.

“There are a lot of fireworks here coming down to the wire with the Fed,” said Jim Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management Inc. “Another announcement of financial stress around the commodity collapse would certainly accelerate this move to the downside. Fortunately, the dollar is somewhat stable. If oil does show some stability, you’ve got people who would buy on a bounce.”

A growing sense of unease spread across global financial markets two days before the Fed meets with policy makers signaling higher rates are likely. The deepening rout on commodities markets amplified concern that struggling resource producers won’t be able to stay solvent, while weakness in high- yield credit markets has sparked fear of contagion.

The S&P 500 fell 0.5 percent at 10:31 a.m. in New York, to the lowest since Oct. 14. The gauge dropped 3.8 percent last week and is now down 5 percent since Nov. 3. Energy producers lost 1.2 percent, while materials stocks sank 2.1 percent to pace losses on Monday.

Bond market anxiety has caught the notice of equity investors after Third Avenue Management froze redemptions at a high-yield mutual fund last week. The SPDR Barclays High Yield Bond ETF, a proxy for the junk-debt market, slipped 0.1 percent after falling 2 percent on Friday, its biggest one-day drop in four years.

Oil and gas producers and miners led the Stoxx Europe 600 Index lower. The guage has fallen more than 8 percent this month amid a rout in commodities and disappointment over the extent of European Central Bank stimulus, defying a seasonal trend that has yielded gains in five of the past six Decembers.

 

West Texas Intermediate crude fell 1.2 percent to $35.21 a barrel after Iran pledged to boost crude exports, bolstering speculation OPEC members will exacerbate the global oversupply.

The Bloomberg Commodity Index fell 1 percent to the lowest level since 1999, as U.S. natural gas for January delivery fell 5.7 percent and reached the lowest intraday price for a next- month contract since January 2002.

Energy prices have also fallen across Europe amid slumping oil prices and warmer-than average weather, with 2015 set to be the mildest on record. U.K. natural gas for next month fell to lowest since April 2010 amid forecasts for above-normal temperatures and lower oil prices.

Gold for immediate delivery fell 0.3 percent to $1,071.39 an ounce, extending last week’s 1.1 percent loss. Industrial metals resumed declines.

 

Top bond investors are predicting more carnage after Third Avenue Management and Stone Lion Capital Partners suspended redemptions, while high-yield credit fund Lucidus Capital Partners said it plans to return the $900 million it has under management to investors next month.

Prices on U.S. high-yield bonds kept sinking Monday with the risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 speculative-grade companies, rising as much as 17.1 basis points to 539.810 basis points, the highest since November 2012. BlackRock’s iShares iBoxx High Yield Corporate Bond ETF, the largest fund of its kind, fell to the lowest levels since 2009.

The U.S. 10-year yield climbed five basis points to 2.18 percent after a 10 basis-point drop on Dec. 11 that was the biggest slide since September. Italian and Spanish bonds declined. Italy’s 10-year yield rose five basis points to 1.59 percent, while Spain’s also gained five basis points, to 1.68 percent.

Emerging Markets

South African assets rallied, with the rand surging the most in seven years after President Jacob Zuma backtracked on his appointment of a relatively unknown lawmaker as finance minister.

The MSCI Emerging Markets Index fell for a ninth day, the longest run of losses since June. The gauge has lost 19 percent this year, compared with a 4.6 percent drop in developed-nation shares as the Fed moves closer to raising rates.

The Shanghai Composite Index climbed 2.5 percent after data over the weekend showed China’s industrial output, retail sales and fixed-asset investment all exceeded economists’ forecasts. The Hang Seng China Enterprises Index of mainland stocks traded in Hong Kong gained less than 0.1 percent. 

Bloomberg’s monthly China gross domestic product tracker picked up to a 6.85 percent estimated growth pace for November, the best reading since June.

The dollar fluctuated as investors prepared for the Fed. The greenback climbed against some currencies of commodity- exporting nations in the past week as oil slid below $40 a barrel and signs of a further slowdown in China’s economy boosted the dollar’s appeal as a haven.

The yuan fell after China introduced a new index valuing it against a range of exchange rates, dropping 0.06 percent to 6.4591 a dollar in Shanghai, according to China Foreign Exchange Trade System prices. The People’s Bank of China cut its reference rate by 0.21 percent to a four-year low of 6.4495.

The South Korean won lost 0.4 percent as the greenback asserted itself amid the countdown to the Fed’s expected rate increase. The Bloomberg Dollar Spot Index, a gauge of the U.S. currency against 10 major peers, rose for a third day, adding 0.1 percent.

The Australian and New Zealand dollars strengthened, while Britain’s pound dropped as Bank of England Deputy Governor for Markets and Banking Minouche Shafik said she would “proceed with caution” when considering voting for an U.K. rate increase.

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U.S. stocks extended a 10-week low as crude remained at its cheapest since 2009 and credit markets weakened further two days before the Federal Reserve is anticipated to raise interest rates.
stocks, credit, oil, market
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2015-12-14
Monday, 14 Dec 2015 11:12 AM
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