Oil rallied, touching $100 a barrel in New York for the first time since October 2008, as Libya’s uprising threatened to halt exports. Stocks fell amid concern higher energy costs will slow economic growth, while Treasuries dropped after a $35 billion auction.
Crude for April delivery settled at $98.10 after surging as much as 4.8 percent to $100. Gasoline and heating oil also jumped. The Standard & Poor’s 500 Index slid 0.6 percent as of the 4 p.m. close in New York after tumbling 2.1 percent yesterday, the most in six months. Hewlett-Packard Co. led losses in equities after its forecasts trailed analysts’ estimates. Sugar and cotton dropped more than 1.9 percent. The euro gained on prospects for higher interest rates.
Concern that surging fuel prices will derail the global economic recovery grew as governments evacuated thousands of expatriates from Libya and opponents to Muammar Qaddafi took control of eastern port cities in Africa’s third-biggest crude supplier. An extended $10 rise in oil cuts 0.5 percentage point off U.S. growth over two years, according to Deutsche Bank AG.
“It’s economic momentum versus geopolitical events,” said Tommy Huie, who oversees about $33 billion as president and chief investment officer of M&I Investment Management in Milwaukee. “The U.S. equity market wants to look beyond the current events in the Middle East. That’s part of the dynamic of a better economy and corporate profits. Obviously, it will all depend on the price of oil and Libya and whether we get more stability sooner rather than later.”
Gasoline rose for a third day on the New York Mercantile Exchange, gaining 4.3 percent to $2.7149 a gallon. Heating oil advanced 4 percent to $2.9049 a gallon. Both settled at the highest prices since September 2008. Brent oil for April delivery climbed 5.6 percent to $111.66 a barrel. Heavy gunfire broke out in Tripoli, army units defected and a former aide to Qaddafi said the revolt may topple the regime within days.
Oil prices may surge to $220 a barrel if political unrest in North Africa halts exports from Libya and Algeria, Nomura Holdings Inc. said. Saudi Arabia and some other producers are willing to put more oil on the market if buyers demand it even if no emergency OPEC meeting is held, said a person with knowledge of producer-nation policy.
U.S. Treasury Secretary Timothy F. Geithner said the economic recovery has put the world on a better footing to withstand the increase in oil prices. The U.S. recovery is beginning to take hold after the loss of millions of jobs during the recession, and federal policies must ensure it is broad-based, President Barack Obama said in his economic report to Congress.
“The economy is in a much stronger position to handle” rising oil prices, Geithner said today during a Bloomberg Breakfast in Washington. “Central banks have a lot of experience in managing these things.”
Technology Shares Slump
Technology shares were the biggest drag on the S&P 500 as Hewlett-Packard sank 9.6 percent, the most since 2004. Ford Motor Co. slumped 2.4 percent amid plans to recall 144,000 pickup trucks and a Supreme Court ruling that opened automakers to more lawsuits over seatbelt design. Exxon Mobil Corp. and Chevron Corp. paced gains that sent energy producers to the only advance among 10 groups in the S&P 500.
The S&P 500 fell for a second day after closing last week at its highest level in 32 months, having almost doubled from its 12-year low in 2009. The rally was fueled by improving profits and economic data, with per-share earnings topping estimates at almost three-quarters of S&P 500 companies that reported since Jan. 10 and consumer confidence climbing to a three-year high.
Yields on current five-year notes gained four-basis points, or 0.04 percentage point, to 2.17 percent. Ten-year note yields climbed three points to 3.48 percent.
At today’s auction, the five-year notes drew a yield of 2.190 percent, compared with the average forecast of 2.170 percent in a Bloomberg News survey of 6 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.69, compared with an average of 2.79 at the previous 10 sales.
The cost of protecting U.S. investment-grade corporate bonds from default rose for a third day to the highest in almost four weeks. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 2.6 basis points to a mid-price of 86.37 basis points as of 4:05 p.m. in New York, according to index administrator Markit Group Ltd.
The euro appreciated against 15 of its 16 most-traded peers, rising 0.4 percent versus the yen. European Central Bank officials will “inevitably” have to “rebalance our monetary policy stance,” with the 17-nation euro-area economy strengthening and inflation in breach of the central bank’s 2 percent limit, council member Yves Mersch said yesterday, without giving a time frame.
Policy makers will take the decisions necessary to maintain price stability, ECB President Jean-Claude Trichet said in Frankfurt today. The central bank kept its key rate at record low of 1 percent for a 22nd month on Feb. 3 to safeguard the economic recovery.
Five companies fell for every one that rose on the Stoxx Europe 600 Index, which slumped 1.1 percent. The MSCI Asia Pacific Index lost 0.6 percent. OMV AG, central Europe’s biggest oil company, slumped 5.8 percent after Chief Executive Officer Wolfgang Ruttenstorfer said output from Libya could be halted. Air France-KLM Group, Europe’s second-largest airline by sales, dropped 1.4 percent. Accor SA, Europe’s biggest hotelier, slumped 3.7 percent after saying it will accelerate an asset-disposal plan.
The Bloomberg GCC 200 Index of Persian Gulf shares rose for the first time since Feb. 13, gaining 0.1 percent. The measure’s relative strength index closed yesterday at 16, the lowest in nine months. A reading of less than 30 typically indicates an asset’s price may rise, according to some technical analysts.
Benchmark stock indexes in Abu Dhabi and Dubai gained more than 1 percent. Bahrain’s dollar bonds due in 2020 strengthened for a second day, pushing the yield down 11 basis points to 6.65 percent, while the cost of insuring against the country’s default fell for the first time in eight days.