Oil Declines With Energy Shares While Yen Weakens on IranLu Wang
Oil fell and the yen weakened against the dollar while energy-company shares led the Standard & Poor’s 500 Index lower after Iran and world powers reached an initial deal on limits to the nation’s nuclear program.
West Texas Intermediate crude fell 0.8 percent to $94.09 a barrel, trimming steeper losses from earlier in the day. The S&P 500, which capped a seventh weekly gain Nov. 22, dropped 0.1 percent by 4:40 p.m. in New York as sub-indexes of oil and gas stocks slumped more than 2.5 percent. The Nasdaq Composite Index closed 0.1 percent higher after topping 4,000 for the first time since 2000. Gold pared declines after touching a four-month low. Japan’s currency slid 0.4 percent to 101.65 per dollar.
Iran agreed yesterday to curtail nuclear activities in return for the easing of some sanctions on oil, auto parts, gold and precious metals, an accord that broke a decade-long diplomatic deadlock. The number of contracts Americans signed to buy previously owned homes unexpectedly fell in October for a fifth consecutive month amid higher borrowing costs that are denting the real-estate recovery.
“One of the rogue nations of the world seems to want to participation in a rational dialogue about the nuclear situation,” Warren Koontz, co-manager of Loomis Sayles Value Fund based in Boston, said in a phone interview. Loomis Sayles & Co. manages about $191 billion. “Do I think that’s going to have an overall, long-term impact on the economy? Probably not, but at least it alleviates the fear if that, in effect, can occur.”
WTI crude futures dropped as much as 1.9 percent before paring losses. Brent crude for January settlement slid 5 cents to $111 a barrel on the London-based ICE Futures Europe Exchange after tumbling as much as 2.7 percent.
In return for Iran limiting its nuclear program, the interim agreement provides for the release of $4.2 billion in frozen oil assets and will let Iran continue exporting oil at current levels, rather than forcing continued reductions by buyers, as would be required under current law, according to a White House statement.
“Sanctions have been hitting Iran oil dramatically,” Henk Potts, who helps oversee about $310 billion as a strategist at Barclays Wealth & Investment Management in London, said by phone today. “There is hope that in the long term the supply dynamics will improve. High commodity prices are one of the key costs to businesses and consumers so a decline in oil equates to lightening up the tax burden.”
Energy shares had the largest decline among 10 broader groups in the S&P 500, losing 0.8 percent. Schlumberger Ltd. and Noble Corp. declined more than 3 percent, pacing losses. Delta Air Lines Inc. jumped 2 percent, leading a rally in airlines amid the decline in crude. Alcoa Inc. climbed 3.8 percent and Caterpillar Inc. rose 1.8 percent after analysts recommended buying the shares.
The S&P 500 has rallied 26 percent this year as the Fed continued its stimulus program of $85 billion a month in bond buying to stimulate economic growth. The gauge is challenging 2003 for the best annual performance for equities since 1998.
The index is trading for about 17 times member companies’ reported earnings, according to data compiled by Bloomberg. While the valuation reached the highest level since May 2010, it’s still below multiples reached at the market’s two previous peaks, when the ratio reached 17.5 in October 2007 and 31 in March 2000, the data show.
“The market is not necessarily over-extended, but probably moderately rich,” Cam Albright, director of asset allocation at the investment advisory unit of Wilmington Trust, said in a phone interview from Wilmington. The firm oversees about $79 billion. “It’s probably difficult to envision this market getting a lot more upside unless it has this continued success on earnings and economic growth.”
The S&P 500 rose for a seventh straight week last week, its longest stretch of gains since February, as reports showed retail sales exceeded economists’ estimates and fewer Americans than expected filed for jobless benefits.
Four out of five investors expect the Fed to put off a decision to begin reducing monetary stimulus until March 2014 or later, according to a Bloomberg Global Poll of investors, traders and analysts who are subscribers. Just 5 percent are looking for a move at the central bank’s Dec. 17-18 meeting, the Nov. 19 poll showed.
A gauge of pending home sales decreased 0.6 percent after a 4.6 percent drop in September, the National Association of Realtors said today in Washington. The median projection in a Bloomberg survey of economists called for a 1 percent gain in the index from the month before.
“The real strong rebound in housing that we saw between 2011 and the first quarter of this year has tapered off now,” Charlie Smith, chief investment officer of Pittsburgh-based Fort Pitt Capital Group Inc., said in a phone interview. His firm oversees $1.5 billion. “The question people have is - can the uptrend in housing be sustained by what classically has been growth in income and therefore the ability to get loans?”
Gold futures trimmed losses after declining as much as 1.5 percent to $1,226.40 an ounce, the lowest level since July 8. Trading was 52 percent above the average for the past 100 days, data compiled by Bloomberg showed. Gold has tumbled 26 percent in 2013 after a 12-year rally.
The yen slid as much as 0.7 percent to 101.92 per dollar and reached a four-year low of 137.99 per euro as demand for the safety of Japan’s currency waned.
The euro weakened 0.3 percent to $1.3514, extending declines after European Central Bank Governing Council member Ardo Hansson said the bank stands ready to cut borrowing costs further and is technically prepared to make its deposit rate negative.
The Norwegian krone slid 0.6 percent to 6.1008 per dollar and the Canadian dollar depreciated 0.3 percent to C$1.0547 per U.S. dollar as currencies of oil-producing nations declined. The ruble lost 0.5 percent versus the greenback in Moscow.
German government bonds rose, pushing 10-year yields down two basis points, or 0.02 percentage point, to 1.72 percent. Spain’s 10-year yield climbed five basis points to 4.15 percent.
Rates on U.S. 10-year notes fell one basis point to 2.74 percent. The Treasury’s sale of $32 billion of two-year notes drew above-average demand on speculation that the Fed’s efforts to hold down short-term yields will support the debt.
“The market is increasingly trusting the Fed,” said Michael Lorizio, senior trader at Manulife Asset Management in Boston. “They want to see significant sustainable improvement before they even think of moving from the zero interest-rate policy.”
The cost of insuring against losses on corporate bonds fell, with the Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies decreasing 1.5 basis point to 78 basis points, the lowest since April 2010. The Markit iTraxx Crossover Index of contracts on 50 high-yield companies declined to 322, the lowest since October 2007.
The Stoxx Europe 600 Index climbed 0.4 percent. Air France-KLM Group, Europe’s biggest airline, advanced 1.9 percent. Deutsche Lufthansa AG, the second-largest in the region, increased 1.8 percent. Thomas Cook Group Plc rose 2.2 percent. Continental AG, Europe’s second-largest auto-parts maker, gained 2.2 percent. Valeo SA, France’s second-biggest maker of car parts, added 2.2 percent.
PSA Peugeot Citroen gained 5.1 percent after people familiar with the matter said its chief executive officer plans to step down next year. Europe’s second-largest carmaker said after the market closed that it hired former Renault SA executive Carlos Tavares to lead the French manufacturer out of a six-year slump in European demand. He will replace Philippe Varin, the current CEO, in 2014.
Peugeot may also benefit from the Iran accord as the country was its biggest market after France prior to the trade sanctions.
Fresenius Medical Care AG climbed 7 percent after U.S. regulators scrapped a plan to cut Medicare payments next year.
The MSCI Emerging Markets Index rose a second day, adding 0.1 percent. Benchmark gauges in India and Turkey climbed more than 1.1 percent while Brazil’s Ibovespa slid 1 percent. The Indian rupee strengthened 0.6 percent against the dollar.
The Shanghai Composite Index slipped 0.5 percent, led by energy producers, after an explosion at a China Petroleum & Chemical Corp. pipeline and the drop in crude. China Petroleum, also known as Sinopec, slumped 4 percent in Shanghai, the most in five months.
Thailand’s SET Index fell 0.5 percent and the baht slid 0.7 percent to a 10-week low. Anti-government protests spread to military bases, government offices and television stations today after more than 100,000 people joined rallies yesterday against Prime Minister Yingluck Shinawatra.
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