Oil, Stocks Go Their Separate Ways
Published 2014-12-20 07:39:21| Amwal Al Ghad English
Investors have wrung their hands over the last several weeks over the effect of lower oil prices on the broader S&P 500, but the relationship between the two is actually starting to break down. Crude prices had dropped more than 10 percent in the trading week ended Dec. 12. That was largely responsible for a 3.5 percent drop in the S&P 500, as investors fled stocks over concerns about energy-sector bonds, corporate earnings, and expectations for world economic demand. That seemed to change Thursday. The S&P 500 surged while oil fell, a potential change in sentiment among investors looking to focus on sectors that may benefit from an accelerating U.S. economy."The proof is that oil turned down and the market said, 'Oh, that was yesterday's news, today we're moving ahead,'" said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey. Bank of America Merrill Lynch credit strategist Hans Mikkelsen credited the decoupling partly to Fed Chair Janet Yellen's Wednesday news conference. "She explained how declining oil prices are expected to be a net positive for the U.S. economy. Furthermore, she went out of her way to dismiss any downward pressure on inflation as transitory."
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- Yen Edges Up In Choppy Trade As Risk Aversion Rises
- Dollar Gets Respite Vs. Yen After Pull-Back; Kiwi Rises After RBNZ
- Egyptian Pound Steady At Official Auction, Weaker On Black Market
- Dollar Under Pressure After Shake Out Of Crowded Bullish Positions
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Gold prices fell the most in more than three weeks and the Swiss franc dipped slightly on Monday after Swiss voters overwhelmingly rejected proposals to boost gold reserves in a referendum. The measure, had it been approved, would have compelled the Swiss National Bank (SNB) to more than double its gold reserves and banned it from ever selling the metal, threatening its ability to defend a 1.20 euro cap on the Swiss franc imposed at the height of the euro zone crisis. Gold fell more than two percent to $1,142.91 per ounce, its lowest level in more than three weeks, while silver also took a hit, falling more than six percent to a five-year low of $14.42 per ounce. The Swiss franc dipped to 1.2042 on the euro from 1.2018 at the end of last week. It last stood at 1.2036. "The result should of course temporarily relieve the pressure on the SNB's currency floor, albeit whilst doing little or nothing in our opinion to reverse the fundamental downward trajectory of EUR/CHF," said JPMorgan analyst Paul Meggyesi. Oil prices hit new four-year lows, unable to find a bottom despite their biggest fall in 2 1/2 years last week after OPEC resisted cuts to output in the face of a supply glut. U.S. crude fell more than two percent to a four-year low $64.62 per barrel after a 13.5 percent last week. That marked a 40 percent decline from their peak in June. Sliding oil prices have stirred deflation fears in the euro zone and Japan, cementing expectations that the European Central Bank and the Bank of Japan will take more steps to support their respective economies. The dollar, taking advantage of such concerns, attracted bids against the euro and yen. The euro was slightly weaker at $1.2441 after having fallen on Friday on data showing annual inflation in the euro zone cooled to five-year lows of 0.3 percent in November. Many traders expect the ECB may signal further action to ward off deflation later this week. The dollar also gained 0.2 percent in early trade to 118.81 yen, coming within sight of testing its seven-year high of 118.98 set on Nov. 20. The dollar index, which measures the greenback against a basket of major currencies, rose to 88.316, near four-year highs of 88.44 set on Monday last week. In Asia, falls in energy and raw material prices look set to hurt assets that are tied to the resource sector, including from Australian mining shares to the Malaysian ringgit. Australian shares dipped 0.2 percent in early trade, helping to push down MSCI's broadest index of Asia-Pacific shares outside Japan 0.3 percent. Nikkei futures in Chicago traded about 0.3 percent below Friday's local closing levels but traders say Japanese shares could benefit from both the fall in the yen and oil. Indeed, shares of some of the other oil consuming economies could gain after Wall Street shares rose for a sixth straight week, as strength in consumer names offset falls in energy shares. U.S. debt yields have fallen to six-weeks low of 2.166 percent on Friday as the fall in oil prices cooled inflation expectations.
Global oil prices slid further on Friday, with Brent on track for the first weekly close below $70 a barrel since 2010, as strong U.S. employment data did little to lift the oil market's bearish mood a day after Saudi Arabia cut official selling prices. Brent and U.S. crude both remained near five-year lows as the market grappled with oversupply due to the U.S. shale boom and the recent decision by the Organization of Petroleum Exporting Countries not to cut production. Prices pared early losses after stronger-than-expected U.S. employment data. November nonfarm payrolls notched their largest increase since Jan 2012, jumping to 321,000 compared with October figures of 243,000. Still, the market remained lackluster and subdued, traders said. "We just had the best economic news come out for some time and the market went nowhere," said Carl Larry, director of business development consultant for oil and gas at Frost & Sullivan. "Traders, hedge funds, oil companies - they're saying that we might as well take some money off the table. Volumes are thin and choppy. Everyone is waiting for the weekend." Analysts said the Saudi cuts to monthly prices for crude it sells to the United States and Asia just a week after blocking cuts to OPEC's output show it is stepping up its battle for market share. "It's been weighing on the market, showing that OPEC is not ready to end its price war," said Commerzbank analyst Eugen Weinberg. "The lower the better seems to be the new paradigm for OPEC." The January Brent crude contract fell by 87 cents to $68.77 a barrel by 11:37 a.m. EST (1637 GMT). U.S. crude was down $1.12 at $65.69. Both were on track for their ninth loss in 10 weeks. The dollar index hit a new intraday high of 89.467, the highest level since March 2009. A stronger dollar makes commodities denominated in the greenback less affordable to holders of other currencies. U.S. employment data contrasts with the euro zone, where Germany's Bundesbank this week halved its 2015 growth forecasts for Europe's largest economy to 1 percent. Oversupply could rise next year when Iraq starts to export more oil because of an agreement between Baghdad and the Kurdish regional government. The supply of North Sea crude that underpins the Brent benchmark will average 871,000 barrels per day (bpd) in January, according to loading programs provided by trade sources.
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