U.S. Stocks Track Chinese Rebound as Oil Slips Amid Output Deal

Russia, Saudi Arabia Freeze Oil Production: What’s Next?
  • Shanghai stocks rise after credit measure surges to record
  • Disappointment as Saudi-Russia deal keeps production as is

U.S. stocks capped their steepest two-day gain since August following a bounce back in Chinese equities. Crude retreated amid bets that a pledge by the world’s two largest oil producers to freeze output won’t succeed in tackling the global surplus.

The Standard & Poor’s 500 Index climbed a second session as U.S. markets resumed after a holiday, with the Shanghai Composite Index jumping the most in three months after data showed Chinese banks issued a record amount of loans. U.S. crude fell to $29.04 a barrel after an agreement by Saudi Arabia and Russia to fix production at January levels fell short of market speculation that they’d cut output. Treasuries fell as Apple Inc. led a resurgence in U.S. corporate bond offerings that diverted demand from government securities.

Concerns over everything from the selloff in oil to China’s slowing economy and whether central-bank stimulus efforts are losing their potency have stoked volatility in financial markets in 2016. Crude’s more than 40 percent slide over the past year has restrained growth in oil-rich emerging-market countries and heightened sensitivity to any sign of willingness by Saudi Arabia, the de facto OPEC leader, to discuss coordinated production cuts. Gyrations in Chinese equities have spurred speculation over whether the nation’s central bank will step up efforts to restore stability to the currency and economy.

“What we’re seeing here are the U.S. markets trying to catch up with the rally that the rest of the world saw yesterday,” said Peter Jankovskis, who helps oversee $1.9 billion as co-chief investment officer of Lisle, Illinois-based OakBrook Investments. “Oil is still important, but I think the larger focus has now switched to financial stocks. People turned their focus on the impact of negative rates spreading around the world, and the impact that might have on banks’ profits.”

Stocks

Is the Worst Over for Global Markets?

Consumer discretionary and industrial shares led the S&P 500 up by 1.6 percent as of 4 p.m. in New York, pushing its gain over the past two sessions to 3.6 percent, the most since the end of August. Data Tuesday showed manufacturing in the New York region declined at a slower pace this month, though it was worse than forecasts by economists surveyed by Bloomberg.

Among shares moving on corporate news, Freeport-McMoRan Inc. gained 15 percent after agreeing to sell an additional stake in one of its biggest mines to Sumitomo Metal Mining Co. for $1 billion. Retailers rallied for a fifth day, with Staples Inc. and Best Buy Co. climbing more than 4.5 percent.

“The consumer in the U.S. remains strong,” said OakBrook’s Jankovskis. “The bottom line is that the economy itself is reasonably healthy, but there are a lot of lingering concerns relative to the longer term impact of some of these central bank efforts to encourage growth elsewhere.”

The Stoxx Europe 600 Index fell 0.4 percent after earlier slumping as much as 1 percent. The gauge is more than 20 percent below its April high. Raw-material and financial companies saw the biggest losses on Tuesday. The MSCI Asia Pacific Index added 0.9 percent as Japanese stocks extended their surge, rising 0.4 percent in the wake of Monday’s steepest one-day climb since 2008, a gain of 8 percent in the Topix index.

Emerging Markets

The Shanghai Composite Index rallied 3.3 percent Tuesday in its second day of trading following the week-long Lunar New Year holiday. more than 40 percent from its June high. The gauge still trades more than 45 percent below a peak reached in June amid persistent concern over the economic slowdown.

China’s lending data for January followed an expression of confidence in the economy from central bank Governor Zhou Xiaochuan over the weekend. China’s Premier Li Keqiang said on Monday that the nation will take decisive actions if needed amid recent global economic headwinds and fluctuating equity markets, according to a Beijing News report.

The MSCI Emerging Markets Index rose 0.5 percent in a second day of gains, with stock gauges in Taiwan, South Korea and Dubai all adding more than 1.4 percent.

Commodities

Brent crude retreated 3.6 percent to $32.18 a barrel after advancing as much as 6.5 percent earlier in the session, while West Texas Intermediate dropped 1.4 percent on the New York Mercantile Exchange.

More than a year since the Organization of Petroleum Exporting Countries decided not to cut production to support global oil prices, crude remains about 70 percent below its 2014 peak. Record oil stockpiles continue to swell, potentially pushing prices below $20 a barrel before the rout is over, Goldman Sachs Group Inc. said last week.

“This does nothing to address oversupply conditions,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, referring to the Saudi-Russia deal. “The market isn’t going to respond because January represents near record OPEC production and Russia was pumping at post-Soviet highs. This is probably the least painful production constraint ever.”

Gold in the spot market fell for a third day, losing 0.7 percent to $1,200.40 an ounce. The precious metal is still up 13 percent in 2016 as the volatility in risk-asset markets burnishes gold’s appeal as a haven asset and store of value.

Currencies

The yen advanced against all 16 of its major peers, climbing most versus the Brazilian real and New Zealand dollar. It gained 0.5 percent to 113.99 per dollar, while the euro dropped 0.2 percent to $1.1136.

Russia’s ruble slipped 1.2 percent and the real slid 1.7 percent as a gauge of emerging-market currencies lost 0.7 percent, snapping a two-day gain.

China’s yuan slipped at least 0.1 percent in on and offshore trading after the central bank set the daily fixing at 6.5130 per dollar, weaker than the 6.5118 reference rate set in the previous session. The currency surged 1.3 percent in Shanghai on Monday as it caught up with declines in the greenback from last week, during the Lunar New Year break

Bonds

Treasury yields rose as investors made room for long-term debt from companies including Apple and International Business Machines Corp.

The maker of iPhones is planning to sell $12 billion of bonds in as many as nine parts to return capital to shareholders, according to people with knowledge of the matter. IBM is marketing notes that will be used for general corporate purposes. The sales follow a week where debt issuance was frozen.

“There’s this huge demand for duration, and a lot of that bid is going to be focused on sopping up these new deals,” said Thomas Simons, money-market economist at Jefferies Group LLC in New York, one of 22 primary dealers that trade with the Federal Reserve.

Rates on 10-year U.S. notes advanced four basis points, or 0.04 percentage point, to 1.78 percent, while the yield on similar maturity German bunds increased by three basis points to 0.27 percent.

Yields on Japanese debt due in a decade fell six basis points to 0.06 percent as the Bank of Japan’s negative interest rates policy came into effect Tuesday. The yield broke below zero last week as anxiety over the global economic outlook boosted demand for the bonds.