While you were sleeping: Oil hits stocks

Friday 18th December 2015

Wall Street declined, while the US dollar and Treasuries advanced, amid concern about the slide in oil prices.

US Treasuries gained, pushing the yield on the benchmark 10-year note five basis points lower to 2.25 percent in midday trading. The greenback strengthened, a day after the Federal Open Market Committee raised the new target range for the federal funds rate to between 0.25 percent and 0.5 percent, up from zero to 0.25 percent. Chair Janet Yellen signalled any further rate hikes will be gradual.

Oil weakened amid ongoing concern about the worldwide glut and the global economy. West Texas Intermediate traded 2 percent lower at US$34.84 a barrel after falling as low as US$34.76 earlier in the day, while Brent last traded 20 cents weaker at US$37.19 a barrel.

"Bearish fundamentals are hanging over the oil markets like storm clouds, with no break in sight or relief in the near future," Chris Jarvis, founder of Caprock Risk Management, an oil market consultancy in Frederick, Maryland told Reuters. "The dollar is moving higher too."

Wall Street moved lower. In 11.58am trading in New York, the Dow Jones Industrial Average shed 0.8 percent. In 11.43am trading, the Standard & Poor’s 500 Index dropped 0.9 percent, while the Nasdaq Composite Index declined 0.7 percent.

Declines in shares of Caterpillar and those of IBM, last trading 2.2 percent and 1.5 percent weaker, led the Dow lower.

“Investors are focusing on some of the lingering issues with regard to stocks: falling price of oil and global weakness,” Walter Hellwig, a senior vice president at BB&T Wealth Management in Birmingham, Alabama, told Bloomberg. “To the extent that there’s doubt about earnings increases next year, that’s going to cause some concerns in the market. The focus today is on those issues rather than clarity in the Fed’s policy, which we really lacked until yesterday.”

Shares of Oracle dropped, last down 5.8 percent, after the company posted revenue that fell short of analysts’ estimates, while shares of General Mills fell, last 3.3 percent weaker, after the maker of Cheerios cereal reported quarterly earnings that disappointed.

To be sure, shares of FedEx climbed, last up 3.3 percent, after the company reported a quarterly profit that exceeded expectations.

"We expect our solid earnings growth to continue in the second half of our fiscal year despite weakness in industrial production," Alan Graf, Jr, FedEx’s chief financial officer, said in a statement. "Our improved financial results are being driven by better revenue quality, e-commerce growth and the successful ongoing execution of our profit improvement initiatives."

The company also said it was dealing with “a record number of holiday shipments—fuelled by the steady rise of e-commerce.”

The latest US data showed jobless claims fell to a lower-than-expected 271,000 last week.

Separately the third-quarter current account deficit grew to US$124.1 billion, while the Philadelphia Fed’s gauge of manufacturing activity in the region fell to -5.9 in December, down from 1.9 in November.

"The intense headwinds facing the US manufacturing sector continue to linger," Millan Mulraine, deputy chief economist at TD Securities in New York, told Reuters.

In Europe, the Stoxx 600 Index ended the session with a 1.4 percent gain from the previous close. The UK’s FTSE 100 Index advanced 0.7 percent, while France’s CAC 40 Index climbed 1.1 percent, and Germany’s DAX Index rallied 2.6 percent.

BusinessDesk.co.nz

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