Equities drop, ‘yields’ down after Draghi comments; dollar edges up

Oil prices fall over glut worries; gold dips

NEW YORK, Nov 12, (Agencies): Government bond yields in Europe and the United States fell on Thursday, driven lower by signals of more monetary policy stimulus out of Europe, while stocks fell, led by sectors most influenced by weak global demand trends.

The dollar had been rallying against the euro after a typically dovish address from ECB head Mario Draghi, suggesting additional efforts to boost growth in Europe. But the currency markets shifted after St. Louis Fed President James Bullard, generally a more hawkish member of the US Central Bank, suggested industrial nations may be headed into an era of permanently low rates.

“Should we find ourselves in a persistent state of low nominal interest rates and low inflation, some of our fundamental assumptions about how US monetary policy works may have to be altered,” Bullard said in prepared remarks.

That drove buying in the US Treasury market, where yields have been steadily rising in anticipation of a Fed rate increase coming in December. The divergence in monetary policy has also pushed the dollar higher of late.

The dollar’s recent gains have helped push crude oil to lows not seen since late August and copper to a six-year low. Oil was down again Thursday, with US crude dropping more than 1 percent to $42.43 a barrel, and Brent crude slipping to $45.33 a barrel, off by 1 percent.

Weak global demand has sapped interest in commodities markets. The US stock market was also weak, led down by energy and materials shares, directly affected by global demand.

The MSCI All-World Index lost 0.6 percent, with the heaviest losses in European shares. The pan-European FTSEuroFirst 300 was down 1.4 percent at 1,487 points.

The dollar index, which tracks the currency against a basket of six major peers, edged up 0.1 percent to 99.15, moving back towards a seven-month peak of 99.504 scaled on Tuesday.

The biggest move across major Asian markets was in the Australian dollar, which jumped more than 1 percent to $0.7150 after figures showed the country’s economy created 58,600 jobs last month.

US

US stocks were lower on Thursday as a fall in commodity prices weighed on energy and materials stocks and investors studied comments by several Federal Reserve policymakers for clues on a widely-expected interest rate hike next month.

The selloff was broad based, with all 10 major S&P sectors in the red, and pushed the Dow and S&P 500 below their 200-day moving averages.

Crude oil prices hit 2-1/2 month lows, while copper and other metal prices tumbled to more than six-year lows, weighed down by a strong dollar, weak Chinese data and concerns about oversupply.

Investors are also keeping a watchful eye on whether the Fed will raise interest rates off near-zero levels in December, a possibility Fed Chain Janet Yellen alluded to last week.

Yellen said on Thursday the Fed must weigh impact of the new financial market landscape, but did not comment on the economy or the timing of a rate hike.

At 11:23 am ET (1623 GMT), the Dow Jones industrial average was down 131.08 points, or 0.74 percent, at 17,571.14.

The S&P 500 was down 12.66 points, or 0.61 percent, at 2,062.34 and the Nasdaq Composite index was down 16.56 points, or 0.33 percent, at 5,050.46.

The energy sector sank 1.9 percent as crude oil prices slipped, while the material sector was down 1.5 percent as commodities prices fell.

Chevron and Exxon were down more than 2 percent, weighing the most on the S&P and the Dow.

Retailers were the bright spot after Kohl’s reported better-than-expected quarterly net sales, sending its shares up 7 percent at $46.19.

J.C. Penney was up about 3.3 percent. Nordstrom , which was up 2.2 percent, is scheduled to report results after the close.

Cisco, also set to report after the bell, was up 0.7 percent and was among the biggest boost to all three indexes.

Advanced Auto Parts dropped 12 percent to $171.37 after it reported quarterly profit below estimates.

Europe

A top European stock index posted its biggest fall in six weeks on Thursday, as weakness in US equities and commodity prices combined with poor earnings updates to drag shares lower.

The pan-European FTSEurofirst 300 index was down 1.6 percent at 1,470.05 points by the close, posting its biggest daily decline since Sept. 28.

The index weakened with Wall Street after jobs data supported the view that the US Federal Reserve could raise rates in December.

Weaker-than-expected earnings reports in Europe included another profit warning from Rolls-Royce, which sent the British engine maker’s shares skidding 19.6 percent — their biggest one-day percentage drop in 15 years.

Commodity stocks were the biggest fallers by sector, with basic resources firms down 4.2 percent and energy firms down 3.1 percent.

A strong dollar and concerns about oversupply sent copper to a six-year low, while an OPEC report that a market surplus in oil would persist sent the price of Brent lower.

Rolls-Royce downgraded its profit forecast for 2016, its fourth profit warning in just over a year. It blamed sharply weaker demand for spares and services to existing aero-engines.

German utility RWE fell 9.6 percent after warning it would only barely reach its full-year net profit target, while Dutch insurer Aegon missed forecasts with its loss, and dropped 11.1 percent.

The third-quarter earnings season in Europe is drawing to a close. According to Thomson Reuters StarMine data, 84 percent of companies in the STOXX Europe 600 index have announced thirdquarter results so far, of which 51 percent have met or beaten analysts’ forecasts. On the revenue front, only 47 percent of companies have met or surpassed expectations.

Shares in BAE Systems rose 3.8 percent after sources told Reuters that it would sell its less profitable operations, boosting the stock despite the defence firm seeing flat earnings for 2015.

UK

Britain’s top equity index was pulled lower on Thursday by engine maker Rolls-Royce, and supermarket operator Sainsbury fell further after posting lower profits a day earlier.

Rolls-Royce dropped 19.6 percent to 525.7 pence, its biggest daily loss in 15 years, after issuing its fourth profit warning in just over a year. It also said it might cut its dividend because of weaker demand for spares and service for existing aero-engines.

The company’s warning pushed investors towards rival BAE Systems, which gained 3.8 percent. BAE said on Thursday it would see no growth in earnings in 2015 after reducing production of Typhoon aircraft and that it would cut jobs in Britain and Australia, but its update was considered more encouraging than Rolls-Royce’s.

BAE shares also rallied after sources told Reuters that it was in advanced talks to sell its US manpower and services businesses to a private equity firm for more than $1 billion.

Rolls Royce shares may fall below 500 pence in the next three months, Beaufort Securities’ sales trader Basil Petrides said, and the threat to its dividend was causing income funds to dump the stock.

The blue-chip FTSE 100 index was down 1.9 percent at 6,178.68 points at its close, underperforming European indexes. Mining companies also weighed on the index. Glencore fell 7.6 percent and Anglo American, Antofagasta and BHP Billiton all lost 4.9 to 8.7 percent, as weak Chinese credit data sent copper prices tumbling on concern its economic growth was slowing.

Sainsbury also fell more than 4 percent, a day after reporting lower profits and warning of more price cuts to come.

“Cost inflation, selling deflation, and gross margins under pressure suggest ongoing, structural profit declines,” HSBC analysts wrote in a note.

The FTSE 100 is down nearly 6 percent since the start of 2015 and more than 13 percent below a record high reached in April after concerns about a slowdown in China, the world’s second-biggest economy, knocked back global stock markets.

Asia

Hong Kong was the stand-out stock market Thursday after five days of losses while Asian traders await a speech from Federal Reserve chief Janet Yellen hoping for clues about US interest rates.

Australia’s dollar put on more than one percent against the greenback thanks to a surprise drop in the country’s jobless rate but a recent rally in some other emerging currencies petered out.

The Hang Seng Index in Hong Kong surged more than two percent, having given up three percent in the past five outings.

Internet giant and market heavyweight Tencent led the charge — rising 2.3 percent — after posting record profits for July-September. And IT firm Lenovo surged 5.8 percent on better-than-forecast earnings.

Most Chinese firms listed in the city were also up, with the index that tracks such firms climbing for the first time in four days on hopes Beijing will introduce new measures to boost the mainland economy.

Oil

Oil prices fell on Thursday, after a report from OPEC showed that while the group anticipates a pick-up in demand next year it also suggests a market surplus will persist.

In its monthly report, the producer group said its oil output fell in October and forecast supply from rival producers next year would decline for the first time since 2007 as low prices prompt investment cuts, reducing a global supply glut.

But the Organization of the Petroleum Exporting Countries report also points to a 560,000-barrels per day (bpd) surplus in the market next year if the group keeps pumping at October’s rate of 31.38 million bpd.

This is down from the 750,000 bpd indicated in last month’s report, but served as a stark reminder that the balance of the market is still firmly tilted towards a surplus.

The price of oil has halved to below $50 a barrel in the last year, mainly as a result of OPEC’s decision last November not to cut supply in response to slowing demand.

Brent crude futures were down 80 cents at $45.01 a barrel by 1342 GMT, following a 3.4 percent fall on Wednesday.

Gold

Gold extended earlier losses to hit its lowest level since early 2010 on Thursday, under pressure from expectations that the U.S. Federal Reserve is on track to raise interest rates next month for the first time in nearly a decade.

Spot gold breached technical support at its July’s low of $1,077 an ounce, falling 1 percent to $1,074.26, the lowest since Feb 11, 2010. The metal was down 0.9 percent at $1,075.85 an ounce by 1423 GMT. US gold futures for December delivery dropped $9.30 an ounce at $1,075.80.

“We expect prices to fall a little bit further because of the anticipated rate hike by the Fed in December,” Capital Economics analyst Simona Gambarini said.

“Prices could fall to $1,050 by the end of the year.”

The metal has shed nearly 6 percent since the start of November, when an upbeat US jobs report boosted expectations the Fed will raise rates this year.