Global stocks advance; oil near ‘3-month’ low before Fed move

Dollar edges up against major currencies

NEW YORK, March 13, (RTRS): Oil prices hovered near three-month lows while a key gauge of world stock indexes advanced on Monday as investors braced for a busy week for global markets, including a potential US interest rate hike by the Federal Reserve.

The dollar steadied against a basket of currencies after touching a two-week low.

Friday’s strong US employment report solidified a view among Wall Street’s top banks that the Federal Reserve will boost interest rates when its policy makers meet this week.

“Right now, the markets appears to be in a wait-and-see phase ahead of the Fed decision,” said Andre Bakhos, managing director at Janlyn Capital in Bernardsville, New Jersey.

MSCI’s all-country world stock index rose 0.2 percent.

US stocks were little changed ahead of the expected Fed rate hike later this week.

The Dow Jones Industrial Average fell 34.76 points, or 0.17 percent, to 20,868.22, the S&P 500 lost 1.7 points, or 0.07 percent, to 2,370.9 and the Nasdaq Composite added 9.02 points, or 0.15 percent, to 5,870.74.

Corporate deal-making continued as chips giant Intel said it would acquire driverless technology firm Mobileye for $15.3 billion. Mobileye shares jumped 30 percent.

In Europe, Amec Foster Wheeler rallied 13 percent after oil services company Wood Group agreed to buy the company for $2.7 billion.

The pan-European STOXX 600 index gained 0.4 percent, helped by increases in mining shares.

Aside from the Fed meeting, which starts on Tuesday, the world’s most powerful finance ministers and central bankers convene in the German town of Baden Baden starting on Friday, their first meeting since Donald Trump won the US election.

Oil prices hovered around threemonth lows, as rising US inventories and drilling activity offset optimism over OPEC’s efforts to restrict crude output.

US crude fell 0.1 percent to $48.43 a barrel, and touched its lowest point since Nov 30. Brent crude edged up 0.1 percent to $51.42 a barrel.

The dollar edged up 0.02 percent against a basket of key world currencies, recovering after Friday’s bout of profit-taking following the robust US jobs report.

“We remain bullish on the dollar, but as Friday’s events suggested, a lot of good news is already priced into the dollar at current levels,” said Shaun Osborne, chief FX strategist, at Scotiabank in Toronto.

Sterling, which has been one of the worst performers against the dollar over the last two weeks, rose 0.5 percent after the devolved Scottish government demanded the right to hold a new referendum on independence.

US Treasury yields edged higher in anticipation of Fed rate hike on Wednesday, nervousness that the central bank could indicate a more aggressive pace of future rate hikes, and new corporate bond supply.

Prices for benchmark 10-year Treasuries slipped 2/32 to yield 2.589 percent, from a yield of 2.582 percent late on Friday.

Spot gold edged up 0.02 percent, but remained near 1.5-month lows.

US

The S&P 500 and the Dow trended lower in afternoon trading on Monday as drug stocks fell, while investors awaited a widely expected interest rate hike later this week.

The 11 major S&P 500 sectors were all trading within small ranges, with the healthcare sector slipping 0.34 percent and on track to snap a three-day winning streak.

The index, which has been the second-best performer year-to-date, was dragged down by Merck and BristolMyers.

A report by the Congressional Budget Office on costs associated with the Republican plan to replace Obamacare could harden opposition to the proposal, adding to the obstacles facing President Donald Trump’s first major legislative effort. The report is due as soon as Monday.

“There is a lot of uncertainty in the healthcare sector,” said Brant Houston, managing director at CIBC Atlantic Trust Private Wealth Management in Colarado.

At 12:38 p.m. ET (1638 GMT), the Dow Jones Industrial Average was down 41.76 points, or 0.2 percent, at 20,861.22, the S&P 500 was down 2.34 points, or 0.09 percent, at 2,370.26.

The Nasdaq Composite was up 5.93 points, or 0.1 percent, at 5,867.66, helped by Facebook.

Investors also took on a wait-andsee stance ahead of the Federal Reserve’s two-day meeting that starts on Tuesday, where the central bank is widely expected to lift interest rates for the first time this year.

Traders have placed a 94 percent bet that Fed Chair Janet Yellen will announce an increase on Wednesday.

Her comments will closely tracked for clues on whether the central bank could become more aggressive on rates as the US economy shows signs of improvement.

Shares of Mobileye jumped nearly 30 percent to $61.11 after chipmaker Intel agreed to buy the driverless technology maker for $15.3 billion. Intel’s shares were off 1.9 percent.

Chipmaker Nvidia, also involved in developing driverless technology, rose 2.2 percent.

Wynn Resorts was the top stock on the S&P, up 4 percent at $103.58 after Morgan Stanley reiterated its “buy” rating and said the company could gain a meaningful market share in Macau.

Advancing issues outnumbered decliners on the NYSE by 1,717 to 1,132. On the Nasdaq, 1,741 issues rose and 1,023 fell.

The S&P 500 index showed 31 new 52-week highs and three new lows, while the Nasdaq recorded 81 new highs and 34 new lows.

Asia

China stocks posted their best gains in three weeks on Monday after a senior research official said over the weekend that the world’s second-largest economy was on steadier footing.

The blue-chip CSI300 index rose 0.9 percent to 3,458.10 points, while the Shanghai Composite Index gained 0.8 percent to 3,237.02.

Li Wei, director of the Development Research Centre of the State Council, said on Sunday that the risk of a sharp slide in China’s economy has decreased.

He said the economy had moved through an “L-shaped” pattern of slowing to now “horizontal” growth.

Fears of more forceful monetary tightening in China also abated after a senior government official said on Sunday that the debt risk for China’s main state-owned enterprises (SOEs) is controllable.

On Friday, China’s central bank governor Zhou Xiaochuan said that it would take time to bring down corporate debt levels.

The central bank has gently lifted short-term interest rates twice this year and is expected to bump them up again in coming months as a more stable economy gives policymakers the confidence and room to tackle financial risks such as high corporate leverage ratios.

Data on Tuesday is expected to show China’s industrial output and investment growth picked up in the first two months of the year, though retail sales may have expanded at a slightly slower pace.

Traders said China’s markets have largely priced in a US rate rise expected later this week.

Sealand Securities said in its latest strategy report that although another US rate hike would have short-term impact on the yuan and domestic liquidity, the “marginal” impact was becoming smaller and smaller, limiting the risk of a further slide in stocks.

Sectors rallied across the board, led by real estate and material shares, which rose on expectations that prices of raw materials will rise further on the back of a recovery in the global economy.

Oil

Oil hovered around three-month lows on Monday, as rising US inventories and drilling activity offset optimism over OPEC’s efforts to restrict crude output.

Brent crude was down 7 cents on the day, at $51.30 a barrel by 1202 GMT, having hit a session trough of $50.85, its lowest level since Nov. 30.

US West Texas Intermediate crude (WTI) fell 15 cents to $48.34 a barrel.

The price has fallen by more than 8 percent since last Monday, its biggest week-on-week drop in four months, and analysts said the slide may not have much further to run.

Goldman Sachs said in a note it remained “very confident” about commodity prices and maintained its price forecast of $57.50 a barrel for WTI in the second quarter.

US drillers added oil rigs for an eighth consecutive week, Baker Hughes said on Friday, lifting spending to benefit from an earlier recovery in crude prices since the Organization of the Petroleum Exporting Countries (OPEC) agreed to cut output.

OPEC and other major oil producers including Russia reached an agreement late last year to rein in production by almost 1.8 million barrels per day (bpd) in the first half of 2017.

Although OPEC states have been complying with supply curbs, led by Saudi Arabia, it has not been enough to overshadow a rise in US inventories to a new high.

“It will be interesting to see how OPEC rhetoric will evolve with this price correction. Is price the only consideration when it comes to the decision of extending cuts?” BNP Paribas global head of commodity strategy Harry Tchilinguirian told the Reuters Global Oil Forum.

He added that OPEC’s task was more difficult as it aimed to cut inventory levels rather than simply target a specific price.

Money managers cut their net long positions in US crude futures and options in the week to March 7.

For the broader financial markets, the focus will be on the Federal Reserve’s policy meeting later this week at which it could likely raise US interest rates.

“The week ahead is packed with potentially market defining releases,” Michael McCarthy, chief market strategist at Sydney’s CMC Markets, said. “However, the key to market performance this week is the response to the US lift in rates.”

Gold

Gold prices slipped on Monday as the prospect of imminent interest rate rises kept them near the five-week lows touched last week. However, losses were limited by elections in Europe creating uncertainty and fuelling investor buying.

Spot gold was down 0.1 percent at $1,203.4 an ounce at 1512 GMT. That compares with $1,194.55 last Friday, its lowest level since Jan 31. US gold futures were up 0.2 percent at $1,203.4.

Investors are focusing on Wednesday’s Dutch elections. The chance of a eurosceptic party coming to power in the Netherlands is seen as small but a strong election performance could fuel speculation of a surprise result in French presidential elections in April and May.