Stock Rally Fizzles as Traders Waver After Euphoria; Oil Tumbles

Global Stock Rally Fades, Dollar Rebounds
  • Oil sinks as Saudis said to see Algiers talks as consultation
  • Fed seeks aggressive limit on Wall Street commodity holdings

The rally in global equities sputtered as traders grew more skeptical about the efficacy of central bank stimulus amid mixed economic data. Oil tumbled.

Stocks halted a four-day advance as Apple Inc. dragged down the S&P 500 Index on speculation of lower iPhone 7 sales outside the U.S. Oil sank after Saudi Arabia was said to dismiss the prospects for an output deal to stabilize the market in talks next week. Longer-dated Treasuries posted their best week since July as markets readjusted their view to a slower pace of rate hikes by the Federal Reserve. The dollar rose against major peers, while the pound slid as British foreign secretary Boris Johnson boosted concern that the U.K. is heading for a swift exit from the European Union.

Stocks, bonds and commodities advanced this week on signals that central banks will keep their accommodative policies. Still, traders became more hesitant to keep piling into assets on Friday amid uncertainties about the global recovery. Dallas Fed President Robert Kaplan said the monetary authority “can afford to be patient in removing accommodation,” while his counterpart in Boston, Eric Rosengren, said the failure to get back to a strategy of gradual rate increases may threaten the economic rebound.

“Today is the inevitable pause because the last two days saw a pretty significant move, particularly in light of a Fed that did what the market was expecting,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee. “The bulk of the price action -- you’ve got bonds selling off a little bit, you’ve got crude oil selling off, the dollar rallying a little bit -- it’s what you’d expect from a pause in a rally.”

With central banks moving off center stage, investors will turn their attention to the first of three U.S. presidential debates on Monday ahead of the Nov. 8 vote. Republican candidate Donald Trump has been locked in a fierce election battle for months with rival Hillary Clinton. While he has sharply narrowed her lead both nationally and in several battleground states according to recent polls, handicappers still give the Democratic candidate the edge in winning the electoral votes needed to clinch the office. 

Stocks

MSCI’s gauge of global stocks dropped 0.6 percent at 4 p.m. in New York, trimming its biggest weekly advance since July. The S&P 500 slipped 0.6 percent to 2,164.69, halting a three-day rally.

Apple slumped on speculation that German research firm GfK issued a report suggesting iPhone 7 sales would be lower than last year, based on data in Europe and Asia. Facebook Inc. sank after disclosing it has been giving marketers an inflated number for the average time being spent viewing online clips. Twitter Inc. soared after the company was said to be holding informal talks with several potential buyers and working with Goldman Sachs Group Inc. to help with a possible deal.

The Stoxx Europe 600 Index trimmed its biggest weekly rally in two months. Polymetal International Plc slipped after two major investors sold a combined stake of about 6 percent in the Russian gold producer. CaixaBank SA, Spain’s third-largest lender, sank after selling shares for 1.3 billion euros ($1.5 billion) to fund its takeover of Portugal’s Banco BPI SA.

Bonds

The Treasury 30-year yield was little changed at 2.34 percent, according to Bloomberg Bond Trader data. Benchmark 10-year notes yielded 1.62 percent.

The Fed’s subdued view of the global economy is in line with the stance of central banks in Europe and Japan, which have used unprecedented stimulus measures in an attempt to shore up their weak economies. While Fed Chair Janet Yellen reiterated that U.S. policy makers still intended to increase rates this year, she said challenges to the economy have meant the central bank has had to revise “down the rate path,” also known as the dot plot.

“Dot plots show that expectations for 2017 have dropped,” said Daniel Lenz, a market strategist at DZ Bank AG in Frankfurt. “Apart from that, the overall stance by central banks remains expansive. The Fed will surely take into consideration that none of the other major central banks will turn less expansive anytime soon.”

Currencies

Bloomberg’s Dollar Spot Index, which measures the greenback against major peers, rose 0.3 percent.

Sterling’s decline halted a two-day gain versus the dollar after Johnson told Sky News on Thursday that the U.K. plans to trigger the Article 50 process in early 2017 and suggested the country’s exit from the bloc could take less than two years. The timeframe is the clearest yet given in public by a member of Prime Minister Theresa May’s government, which previously limited itself to saying Britain wouldn’t invoke Article 50 of the Lisbon Treaty this year.

Turkey’s lira retreated after President Recep Tayyip Erdogan said the nation’s central bank did the right thing by cutting interest rates this week and it should continue to do so

Commodities

West Texas Intermediate for November delivery fell 4 percent to $44.48 a barrel on the New York Mercantile Exchange.

The kingdom doesn’t anticipate any decision to be made about supply, according to an OPEC delegate familiar with Saudi Arabian policy. Prices climbed earlier today after Saudi official were said to have made a proposal to their Iranian counterparts to lower the kingdom’s production in exchange for Tehran agreeing to freeze its own output at its current level of 3.6 million barrels a day.

"Oil is tanking and it’s the Saudi headlines that are responsible for the move, " said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York.

The Fed proposed a new regulation that would require banks to put up much more capital to support investments in physical commodities, restrict involvement with power plants and limit the amount of trading banks can do. Officials estimated that the proposal would mean about $4 billion in additional capital for the industry’s current activity, though the industry has been steadily backing away.

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