Global Stocks Drop Amid Commodity Slump Before Fed as Yen Climbs

Bridging the Gap on Fed, Investor Growth Expectations
  • U.S. crude posts biggest two-day decline since Feb. 11 on Iran
  • Brazil shares lead losses as President Rousseff fights to stay

Global stocks retreated and emerging-market assets fell as the biggest two-day slide for commodity prices in a month reminded investors of the financial-market turmoil that marked the start of this year. 

The Standard & Poor’s 500 Index fell a second day, paring declines in the latter half of the day as gains in technology shares offset losses among energy and raw materials producers. Benchmark equity gauges in Europe and Asia retreated from their highest levels since January, as the Federal Reserve began a two-day policy meeting. Brazil and South Africa led losses in developing-nation markets, as investors sought refuge in the yen and the dollar. West Texas Intermediate oil posted its first back-to-back drop in a month after Russia signaled Iran won’t join major producers in freezing output.

While world equities have staged a comeback since mid-February, there are few signs that monetary easing in China, Europe and Japan is stoking growth and burnishing sentiment in the long term. The Bank of Japan’s decision Tuesday to maintain stimulus at current levels came after the European Central Bank expanded its own easing program last week. The Fed will conclude its policy review on Wednesday and the Bank of England a day later. Concern a pact to freeze oil output among major producers is failing to gain traction hit U.S. crude, which is near its most correlated with the global share market since 2013.

“When we see bad oil prices, we see a bad stock market,” said Mariann Montagne, who helps oversee $870 million as senior investment analyst at Gradient Investments Group. “We don’t expect any rate decision or any rate change as a result of the meeting. Janet Yellen’s comments will probably be wait and see, and I would not expect the market to trade lower with comments like that. The actions taken by the ECB are probably better for the economy, and she’s probably waiting for some of those new actions to take hold and support their economy before raising rates.”

Stocks

The Standard & Poor’s 500 Index declined 0.2 percent as of 4 p.m. in New York, while the Dow Jones Industrial Average erased a retreat, gaining 0.1 percent by the close. Valeant Pharmaceuticals International Inc. plunged 52 percent to the lowest level since 2011 after the company cut its sales forecast. Freeport-McMoRan Inc. sank 7 percent to lead mining shares lower. Apple Inc. advanced for a fifth day, jumping 2 percent and contributing the most to gains in the S&P 500 and Dow Tuesday.

Data during the session showed U.S. retail sales dropped in February, while the prior month’s gain was revised to a decline. A separate report showed manufacturing activity in the state of New York rose in March.

“With January retail revised down, that’s going to be viewed as a negative because the question is, ‘where is the consumer and why aren’t we seeing savings from low oil prices flow through to sales,”’ said Bob Phillips, co-founder and managing principal at Indianapolis-based Spectrum Management Group Inc. “It probably causes the Fed to be much more cautious. The Fed is really the key this week, with everything else triggered off of that.”

Investors are also monitoring races for the Democratic and Republican party nominations for U.S. president, with Florida and Ohio among the five states holding votes Tuesday. Donald Trump could make his campaign harder to stop, altering the Republican Party’s composition for years to come.

The Stoxx Europe 600 Index dropped 1.1 percent with commodity producers posting the biggest drop of the index’s 19 industry groups. Antofagasta Plc fell 4.5 percent after abandoning its dividend and saying annual profit slumped 99 percent. Among energy-related companies, Tullow Oil Plc and Seadrill Ltd. lost more than 9.7 percent.

The MSCI Asia Pacific Index slipped 0.8 percent as indexes in Australia and Japan lost at least 0.6 percent.

Currencies

The yen appreciated 0.5 percent to 125.72 per euro after the BOJ maintained its negative policy rates and kept asset-purchase plans unchanged. Japan’s currency strengthened 0.6 percent to 113.16 per dollar.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, added 0.2 percent ahead of Wednesday’s Fed announcement.

The currencies of Brazil, Australia and Canada lost at least 0.8 percent amid the selloff in commodities.

Commodities

U.S. crude dropped 2.3 percent to settle at $36.34 a barrel, after tumbling 3.4 percent on Monday, while Brent was down 2 percent to $38.74. 

Iran has “reasonable arguments” for not joining an alliance to cap production now, Russian Energy Minister Alexander Novak said after meeting with his Iranian counterpart. U.S. stockpiles probably expanded last week, keeping supplies at the most since 1930, analysts predicted ahead of data due on Wednesday.

Copper for delivery in three months erased declines on the London Metal Exchange after falling as much as 1.3 percent. Stockpiles in China spurred concern over the strength of demand in the world’s biggest user of copper, with inventories monitored by the Shanghai Futures Exchange at a record high.

Bonds

The gap between yields on two- and 30-year Treasury debt narrowed to the least since 2008 as traders boosted wagers that the Fed will raise interest rates this year. Yields on two-year notes climbed to a two-month high, while 30-year rates were little changed as policy makers began their two-day meeting.

Pacific Investment Management Co. predicts yields on the 10-year note will climb as high as 2.5 percent this year as inflation accelerates and the Fed raises interest rates.

Euro-area government bonds declined. Portugal’s 10-year yield climbed five basis points, or 0.05 percentage point, to 2.95 percent, while Spain’s also gained by that much to 1.51 percent.

Emerging Markets

The MSCI Emerging Markets Index retreated for the first time in four days, sliding from this year’s high as all ten industry groups declined.

Brazil’s Ibovespa was the worst performing benchmark in dollar terms among more than 90 global stock gauges tracked by Bloomberg. Local media reported former President Luiz Inacio Lula da Silva will take a cabinet post with the current government, making it harder for prosecutors to investigate corruption during his administration and that of his successor, Dilma Rousseff. Traders had bid up Brazilian stocks, bonds and the currency over the past weeks on mounting speculation that Rousseff would be ousted.

Turkey’s Borsa Istanbul 100 Index fell for the first time in more than two weeks. A suicide car bomb killed at least 37 people in the nation’s capital on Sunday.

A gauge of 20 developing-nation currencies dropped for a second day. The ruble weakened 1.5 percent versus the dollar, as falling crude prices overshadowed optimism that relations with Europe and the U.S. will improve after President Vladimir Putin ordered some forces to withdraw from Syria.

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