European bank bailout soothes stocks; oil dips on supply data

All eyes on ‘Triple Threat Thursday’

NEW YORK, June 7, (Agencies): A smoothly executed rescue of Spain’s struggling Banco Popular lifted European bank stocks on Wednesday, while US stock and bond investors showed caution ahead of Thursday’s British vote, an ECB meeting and testimony by ex-FBI chief James Comey.

Oil prices dipped on renewed concerns about the efficacy of OPEC-led production cuts and a Mideast political rift, then extended losses after EIA data showed a surprise build in US crude inventories.

US crude fell 4.21 percent to $46.16 per barrel and Brent was last at $48.37, down 3.49 percent on the day.

In Spain, the absorption of Popular by the country’s biggest bank Santander for a nominal 1 euro was the first use of a regime to deal with failing banks adopted after the 2008 financial crisis, and made barely a ripple in Europe’s stock and debt markets.

The success of the process pushed shares in many major banks higher, supporting a recovery for Madrid’s stock market and fending off this week’s broadly weaker mood.

European banking shares rose 1.38 percent.

The bank rescue does, however, underline the risks to growth, banking and government debt burdens that are likely to delay a major switch in language and policy direction by the European Central Bank at its meeting on Thursday.

The pan-European FTSEurofirst 300 index rose 0.13 percent and MSCI’s gauge of stocks across the globe gained 0.04 percent.

The euro turned shaky after reports suggested the ECB would lower its inflation targets. It was last down 0.23 percent to $1.125.

The ECB meeting is one of three events that ING currency strategist Viraj Patel said had been dubbed ‘Triple Threat Thursday,’ ... an event-filled day that could send global markets on a bumpy ride.”

Also on Thursday will be a surprisingly closely-fought British election and US Senate testimony from James Comey, the former FBI chief fired by President Donald Trump.

Any damaging revelations in Comey’s testimony are likely to further hurt Trump and take the wind out of his plans to roll back regulations and overhaul the tax system — an agenda that had sent the dollar to 14-year highs earlier this year.

On Wall Street, shares opened slightly higher, turned negative and then rose again.

The Dow Jones Industrial Average rose 18.41 points, or 0.09 percent, to 21,154.64, the S&P 500 gained 2.44 points, or 0.10 percent, to 2,431.77 and the Nasdaq Composite added 21.12 points, or 0.34 percent, to 6,296.17.

US

US stocks slipped in early afternoon trading on Wednesday, weighed down by a fall in oil prices, while caution reigned ahead of Thursday’s major political and economic events.

Oil prices fell more than 4 percent due to an unexpected rise in US crude inventories and took a toll on the energy sector, which dropped 2.1 percent.

Exxon’s 0.7 percent fall and Chevron’s 1.3 percent fall were among the biggest drags on the S&P 500 and the Dow.

Investors are also keeping a watch on Britain’s general election, the European Central Bank’s policy meeting and former FBI Director James Comey’s testimony before a Senate panel on Thursday.

Comey’s first public appearance since he was fired by US President Donald Trump might shed more light on a probe by the FBI into alleged Russian meddling in last year’s US presidential election.

Any damaging revelation in Comey’s testimony could dampen already flagging momentum for Trump’s probusiness fiscal agenda.

“I think the Comey news led to an initial surprise but the rebound was equally swift,” said Liz Ann Sonders, chief investment strategist at Charles Schwab & Co.

The ECB will also hold its policy meeting on Thursday and is expected to reiterate its plan to extend the money-printing scheme at least until the end of the year.

At 12:53 pm (1653 GMT), the Dow Jones Industrial Average was down 13.5 points, or 0.06 percent, at 21,122.73 and the S&P 500 was down 3.46 points, or 0.14 percent, at 2,425.87.

The Nasdaq Composite was down 5.79 points, or 0.09 percent, at 6,269.27.

Seven of the 11 major S&P 500 sectors were higher, with the financial index’s 0.78 percent rise leading the advancers.

Shares of Navistar International were down 4.2 percent at $28.68 after the truck and engine maker posted a quarterly loss.

Declining issues outnumbered advancers on the NYSE by 1,526 to 1,283. On the Nasdaq, 1,444 issues rose and 1,343 fell.

Europe

Banks and utilities supported European stocks on Wednesday, with relief that Spain’s struggling Banco Popular was being rescued by Santander lifting bank shares.

The STOXX 600 index fell 0.1 percent, weighed down by a late drop in energy stocks. Crude oil prices plunged after data showed US stocks of crude oil and gasoline surprisingly rose last week.

Britain’s FTSE 100 index fell 0.6 percent and Germany’s DAX inched 0.1 percent.

Although shares in Santander fell 0.9 percent in choppy trade and Banco Popular’s were suspended, European banks were among the standout performers, gaining 0.7 percent. Santander said it would buy Popular and carry out a capital increase of around 7 billion euros ($7.9 billion).

“As a stand-alone bank, (Popular) was close to failing ... and the failure of any bank, as we’ve seen in the past, can set of that chain of events where the whole banking sector gets freaked out, investors especially,” said Mike van Dulken, head of research at Accendo Markets.

Spain’s Bankia, Italy’s UniCredit and France’s Societe Generale were all up between 1 percent and 4.9 percent.

European utilities also gained, led by Germany’s E.ON and RWE. Both rose more than 5 percent after the country’s highest court declared a nuclear fuel tax illegal, enabling them to claim back 6 billion euros in cash .

Shares in Swedish biometric firm Fingerprint Cards were the top STOXX risers, jumping 11.6 percent, after confirming an order for its sensors.

On the downside, Covestro dropped 4.6 percent after Bayer cut its stake in the plastics maker to 44.8 percent from 53.3 percent.

Investors were also looking ahead to the British election on Thursday, as well as the European Central Bank’s policy meeting.

Asia

Traders trod water in Asia on Wednesday as they nervously await a string of major events that could either hammer global markets or fuel a rally.

The yen rose to 109.37 against the dollar, more than 1.5 percent stronger than last week, while gold was hovering around seven-month highs. The two are considered safe bets in times of uncertainty.

On equity markets Tokyo’s Nikkei ended flat, while Seoul and Wellington each slipped 0.4 percent.

Hong Kong fell 0.1 percent and Sydney was barely moved following data showing Australia’s economic growth slowed sharply in the first quarter.

But Shanghai jumped 1.2 percent as traders welcomed a further strengthening of the yuan, which has jumped more than three percent since the start of the year, when it had been wallowing around eight-year lows. Singapore, Manila and Jakarta were slightly higher. n Key figures around 0810 GMT: Tokyo — Nikkei 225: FLAT at 19,984.62 (close)

Hong Kong — Hang Seng: DOWN 0.1 percent at 25,974.16 (close)

Shanghai — Composite: UP 1.2 percent at 3,140.32 (close)

Oil

Oil prices dipped on Wednesday on renewed concerns about the efficacy of OPEC-led production cuts due to rising tensions within the export group over Qatar and growing US output.

Brent crude prices were at $49.70 per barrel at 1351 GMT, down 42 cents. Brent is about 8 percent below its open on May 25, when OPEC and other producers agreed to extend oil output cuts through to the first quarter of 2018.

US light crude prices were at $47.69 per barrel, down 50 cents.

The US Energy Information Administration (EIA) said on Tuesday US crude oil production could hit a record 10 million bpd next year, up from 9.3 million bpd now and almost equalling top exporter Saudi Arabia.

In the nearer term, with fuel production and consumption largely balanced according to the EIA, the market is focused on still bloated inventories.

In the United States, official inventory data from the EIA will be published on Wednesday, with expectations of a fall in stockpiles. The American Petroleum Institute said on Tuesday crude inventories fell by 4.6 million barrels last week.

The Organization of the Petroleum Exporting Countries has pledged to cut almost 1.8 million barrels per day (bpd) to help reduce global inventories to their five-year average.

“The market just has to be patient,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets, adding that a gradual reduction in inventories would support prices without the kind of price spike that would drive US shale production higher.

But analysts saw a risk that rivalries between OPEC members could weaken the production cut agreement. OPEC members Saudi Arabia and the United Arab Emirates cut diplomatic and transport ties with Qatar, a small producer.

Gold

Gold prices held near seven-month highs on Wednesday with sentiment still bullish due to political uncertainty created by an election in Britain and testimony by a former FBI director to the US Senate.

However, bullion came under some pressure after the dollar rose against the euro due to reports that the European Central Bank was preparing to cut its inflation forecasts on Thursday.

A rising US currency makes dollardenominated gold more expensive for holders of other currencies, potentially subduing demand.

Spot gold was down 0.2 percent at $1,291.1 an ounce at 1345 GMT. On Tuesday, it gained 1.1 percent to hit its highest level since November last year at $1,295.97. US gold futures slipped 0.2 percent to $1,294.2.