Investors favor safe bets amid global geopolitical concerns

Oil reverses gains after US inventory data

NEW YORK, April 12, (RTRS): Safe-haven gold and US Treasuries prices held steady on Wednesday while US stocks edged lower as investors fretted about global geopolitical risk and the upcoming US corporate earnings season.

US Treasury yields were little changed as demand tied to worries about Syria and North Korea offset investor selling ahead of a 30-year bond auction.

Oil prices reversed earlier gains after a report on US crude stockpiles suggested the market was still heavily supplied. On Wall Street, defensive sectors were among the brightest spots in keeping with preferences for safety.

“The geopolitical tension has not escalated but it’s not going away either,” said Mary Anne Hurley, vice president of fixed income at D.A. Davidson in Seattle.

The Dow Jones Industrial Average fell 55.23 points, or 0.27 percent, to 20,596.07, the S&P 500 lost 8.13 points, or 0.35 percent, to 2,345.65 and the Nasdaq Composite dropped 24.92 points, or 0.42 percent, to 5,841.85.

Aside from politics investors were hoping quarterly earnings would support lofty valuations on Wall Street ahead of big bank earnings which unofficially kick off the season on Thursday.

“It would be very important what they (banks) offer as forecast because stock prices imply better times ahead and investors are looking for assurances and positive forecasts to be issued,” said Rick Meckler, president of LibertyView Capital Management in Jersey City, New Jersey.

Europe’s STOXX 600 was up 0.2 percent but was well below its high of the day.

Gold was up 0.2 percent at $1,276 an ounce, its highest since Nov. 10, after jumping 1.6 percent on Tuesday.

The dollar index, which measures the greenback against a basket of six other major currencies, was down 0.17 percent after hitting its lowest since April 7.

The dollar was still down slightly against the yen, after falling to its lowest in nearly five months earlier in the day against the Japanese currency, a favorite in times of stress due to Japan’s position as the world’s largest creditor nation.

The dollar fell 1.2 percent against the yen on Tuesday.

Oil futures turned negative after eight straight sessions of gains on the US inventory data suggesting persistent oversupply.

Global benchmark Brent crude fell 0.3 percent to $56.08 a barrel, while US crude shed 0.02 percent to $53.39.

US

US stocks drifted lower on Wednesday as investors sought shelter in safe-haven assets amid lingering geopolitical worries, while keeping the upcoming earnings season in sight.

The S&P 500 fell below its 50-day moving average, while gold and VIX .VIX, Wall Street’s fear gauge, rose to their highest levels in five months.

At 12:35 p.m. ET (1635 GMT), the Dow Jones Industrial Average .DJI was down 72.27 points, or 0.35 percent, at 20,579.03 and the S&P 500 .SPX was down 10.19 points, or 0.43 percent, at 2,343.59. The indexes were on track for their worst one-day percentage decline in over three weeks.

The Nasdaq Composite .IXIC was down 30.18 points, or 0.51 percent, at 5,836.60.

The worst hit were financials and industrials, sectors which have outperformed the broader market in the postelection rally.

The S&P 500 financial sector .SPSY was off 0.83 percent, but was the biggest drag on the index due to a drop in bank heavyweights including Wells Fargo (WFC.N) and Bank of America (BAC.N).

Industrials were off 1 percent, weighed down by General Electric Union Pacific Corp and Boeing.

“Technically, we are due for a breather and if the earnings season disappoints, it could provide the correction that we need,” said Josh Jalinski, president of Jalinski Advisory Group.

Wells Fargo, along with Citigroup and JPMorgan, will unofficially kickoff the first-quarter earnings season on Thursday, which will also be the last trading day of the week ahead of the Good Friday holiday.

Eight of the 11 major S&P sectors were lower.

Utilities, consumer staples and telecom services, defensive sectors with slow but predictable growth, were up. Tractor Supply was the biggest percentage loser on the S&P, down nearly 7 percent following a profit warning from the specialty retailer.

Delta Air Lines was up 1.3 percent at $45.84, boosted by a better-thanexpected quarterly profit and an upbeat forecast for current-quarter passenger unit revenue.

UK

Britain’s top share index inched lower on Tuesday after rising to a three-week high in the previous session, as results weighed on Tesco shares and the broader UK supermarket sector.

The blue chip FTSE 100 index fell 0.2 percent in light volume before a market holiday later in the week.

Industrial stocks led the index’s gains, with engineer Rolls Royce gaining the most, 2.5 percent. Materials and financials were the biggest drag.

British grocers fell, led by Tesco. Its shares dropped 5.7 percent after the company reported full-year figures.

Tesco’s full-year profit beat forecasts, rising 30 percent, but analysts flagged such negatives as a decline in international margin and a slowdown in UK and Ireland margins. The stock had rallied around 6 percent over the five sessions before the results.

Peers Morrison’s and Sainsbury also fell, by 1.7 and 2.7 percent respectively. Mid-cap Booker Group , which has agreed to a 3.7 billion-pound ($4.6 billion) takeover by Tesco, also dropped 4.1 percent.

Shares in recruiter Pagegroup rose the most among British mid caps, rising 7.1 percent. The company posted a record quarterly gross profit that beat expectations, helped by growth in its markets outside the UK.

Europe

European shares inched up on Wednesday, steadying around 16 month highs, helped by gains in Syngenta and a rally in defence stocks on investor concerns about lingering geopolitical risks.

The pan-European STOXX 600 index rose 0.2 percent but trading was choppy just a few days ahead a holiday break, while Germany’s DAX added 0.1 percent and France’s CAC was flat.

Syngenta was the biggest singlestock contributor to gains in the STOXX index, up 2.2 percent, after Chem-China’s $43 billion planned takeover of the Swiss pesticides and seeds group received approval from Chinese regulators.

Europe’s aerospace and defence stocks index outperformed, up 0.9 percent to a fresh 20 month highs.

“Every time macro political tensions arise, the sector gets a boost,” said Federico Polese, fund manager at Simplify Partners, noting however that defence spending programs are long term and do not change when the political climate heats up.

“Investors are pricing in expectations of a rise to defence spending in the US,” he added.

Auto stocks also provided support but their sectoral index pared some gains to end up 0.3 percent.

French auto parts manufacturer Faurecia gained 1 percent after it posted firstquarter sales up 10 percent to 4.2 billion euros. Deutsche Bank said strong results over consecutive semesters should feed through into a valuation which is one of the lowest in the sector.

Asia

China stocks slid on Wednesday, as softer producer inflation data raised questions on the sustainability of the country’s economic recovery and some shares that had rallied on plans for a new economic zone lost steam.

The blue-chip CSI300 index fell 0.2 percent to 3,509.44, while the Shanghai Composite Index lost 0.5 percent to 3,273.83 points.

China’s producer price inflation cooled for the first time in seven months in March as iron ore and coal prices tumbled, pressured by fears that the country’s steel production is outweighing demand and threatening a glut of the metal this year.

But Wu Kan, head of equity trading at investment firm Shanshan Finance, said cooling inflation “has been largely expected”, citing recent weakness in commodity prices.

In his view, longer-term companies able to benefit from plans for the economic zone at Xiongan should benefit as such projects “will boost demand for building materials”.

Shares linked to infrastructure work surged after the zone was announced, and many cooled down on Wednesday.

Great Wall Motor, a Hebei-based car maker, dived 8 percent. The car maker had surged as much as 21 percent since April.

Guangdong-based developers and port operators surged on Wednesday, as Prime Minister Li Keqiang said the central government this year will formulate the development plan for Guangdong-Hong Kong-Macau Great Bay Area.

Oil

Brent oil extended gains into an eighth straight session on Wednesday, having recovered nearly all last month’s losses, after Saudi Arabia was said to be pushing its fellow OPEC members and some rivals to prolong supply cuts beyond June.

Brent crude futures were up 10 cents at $56.33 a barrel by 1352 GMT, having touched a one-month high of $56.65. If the day’s gains hold, it will be the longest winning streak for the international oil benchmark since February 2012.

US West Texas Intermediate (WTI) crude futures were up 12 cents at $53.52 a barrel, on track for a seventh straight session of gains.

OPEC countries cut oil output in March by more than they pledged, according to figures the group published in a monthly report on Wednesday, as it sticks to an effort to clear a supply glut that has weighed on prices.

Saudi Arabia, de-facto leader of the Organization of the Petroleum Exporting Countries, has told other producers that it wants to extend the coordinated production cut beyond the first half of the year, the Wall Street Journal reported.

“The main question is what OPEC will decide. On the one hand, it seems logical to assume that OPEC will expand the agreement to prevent triggering a large drop in oil prices,” ABN Amro senior energy economist Hans van Cleef said.

Gold

Gold steadied on Wednesday after hitting a five-month peak as political tensions simmered, leaving investor interest in safe havens like the precious metal largely in tact.

Tarnishing an otherwise brightening outlook for global growth, tensions continued over the Korean peninsula and the Middle East, while worries about the upcoming French presidential election persisted.

Spot gold was mostly unchanged at $1,274.54 per ounce by 1414 GMT. It hit its strongest since Nov. 10 at $1,279.80 earlier, extending the previous session’s near 2 percent gains.