Stocks Fall as Energy Prices Drop, Treasuries Rise on Fed Bets

  • Apple rises in late trading after reporting earnings
  • Fed commentary in focus as few traders expect rate increase

Declines in oil and natural gas rippled through world markets, weighing on equities as the Federal Reserve began a two-day meeting amid fresh jitters over the strength of the global economy and the threat of deflation.

The Standard & Poor’s 500 Index slid for a second day, with energy shares leading declines as West Texas Intermediate tumbled to a two-month low. Natural-gas contracts rebounded after dipping below $2 for the first time since 2012. Apple Inc. rose in late trading after forecasting holiday sales that would set a company record. The yield on the benchmark 10-year Treasury note touched 2.01 percent.

OIL DECLINE: WTI is trading at about half the five-year seasonal average.
OIL DECLINE: WTI is trading at about half the five-year seasonal average.

“Everybody is waiting to see what the Fed has to offer,” said Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank AG in Bonn, Germany. “I don’t think they’ll give us much at all, but nobody wants to be caught on the wrong side. With no press conference, it will be a case of reading between the lines to interpret their statement.”

With the Fed not expected to tighten this week, attention will focus on how oil’s decline and China’s economic slowdown affect the central bank’s commentary. Orders for U.S. business equipment unexpectedly declined in September, as tepid global demand weighs on industrial suppliers such as Caterpillar Inc. and 3M Co.

Stocks

The S&P 500 lost 0.3 percent for a second day of losses after closing Friday at a two-month high. The index remains on track for its best monthly advance in four years as it rebounds from a summer swoon. 

Apple rose 0.4 percent at 5:38 p.m. in New York. The Cupertino, California-based company said fiscal first-quarter sales will be $75.5 billion to $77.5 billion, topping last year’s record. Revenue is being fueled by demand for the latest iPhones and sales in China. Twitter Inc. tumbled 12 percent afterhours as user growth slowed. Also after the close, Walgreens Boots Alliance Inc. agreed to acquire Rite Aid Corp. for $9.42 billion in cash.

In the regular session, energy shares sank 1.2 percent, with Consol Energy Inc. tumbling 21 percent after losses topped estimates. International Business Machines Corp. fell 4.1 percent after disclosing a regulatory investigation into its accounting.

Drugmakers were the only group in the S&P 500 to advance after Pfizer Inc. and Bristol-Myers Squibb Co. rallied on profits that topped projections. Ford Motor Co. declined on lower-than-expected earnings. United Parcel Service Inc. fell as its sales were short of forecasts. Alibaba Group Holding Ltd. jumped after its results beat estimates.

“We’re definitely seeing softer data across the U.S., and more negatives than positives in earnings this morning,” Yousef Abbasi, global market strategist at JonesTrading Institutional Services LLC in New York, said by phone. “It feels like there are noticeable misses.”

Bonds

Treasuries rose for a second day on speculation the Fed will keep its benchmark interest rate at a record low. China’s interest-rate cut last week highlighted risks to the biggest economies as the U.S. central bank considers whether trouble overseas poses a threat to U.S. growth.

Benchmark 10-year note yields fell three basis points to 2.03 percent. Data Tuesday did little did change investor perceptions that the Fed will stand pat. A measure of consumer confidence in the U.S. tumbled more than forecast in October, adding to signs of a mixed economy as the Fed considers the timing and pace for higher interest rates.

Commodities

The Bloomberg Commodity Index fell 0.4 for a fifth straight decline, the longest run of losses since August. West Texas Intermediate oil dropped 1.8 percent to settle at $43.20 a barrel in New York. That’s the lowest close cine Aug. 27.

Oil’s rally above $50 a barrel earlier this month failed as surging U.S. inventories bolstered speculation that a global glut will be prolonged. A report tomorrow is expected to show inventories rose by 3.1 million barrels last week.

U.S. natural gas futures gained 3 cents to settle at $2.092 per million British thermal units in New York, erasing a loss of as much as 5.5 percent to $1.948 on speculation that low prices and the approach of winter will ease a supply glut. Prices dropped more than 40 percent in the past year.

Currencies

The yen strengthened as investors opted for its relative safety before the Fed and Bank of Japan announce policy decisions later this week. Economists are split on whether the BOJ will boost its already record stimulus at an Oct. 30 meeting. 

The yen climbed 0.7 percent to 120.38 per dollar, after rising 0.3 percent Monday. The Japanese currency weakened 1.7 percent against the greenback last week. The euro was little changed at $1.1038.

The Norwegian krone led decline in currencies from commodity-exporting nations, falling 1.5 percent versus the dollar. The South African rand dropped 0.4 percent and the Canadian dollar weakened 0.8 percent. Russia’s currency weakened 3.2 percent to 65.0618 per dollar, the steepest drop among 24 emerging-market peers tracked by Bloomberg.

Emerging Markets

The MSCI Emerging Markets Index slipped 0.7 percent, with energy producers falling to the lowest level in three weeks. Petroleo Brasileiro SA, the Brazilian state-run oil producer, dropped in Sao Paulo as the Ibovespa fell for a third day. Stocks fell to the lowest level in six weeks in Dubai, while Saudi Arabian shares retreated 3 percent.

EM stocks emerigng markets fed liftoff wirp bets FOMC
EM stocks emerigng markets fed liftoff wirp bets FOMC

Chinese shares erased losses in the last 30 minutes of trading and closed at a two-month high spurred by a rally for defense-related companies.

A gauge of 20 emerging-market currencies slid for a third day, led by the ruble’s decline. Malaysia’s ringgit weakened after Fitch Ratings said the government may miss its 2016 fiscal-deficit target.

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