While you were sleeping: Oil burns investors

Tuesday 15th December 2015

Equities slid with the price of oil as investors awaited the result of the US Federal Reserve two-day meeting starting on Tuesday.

The Federal Open Market Committee is widely expected to announce its first interest rate increase since 2006 on Wednesday, and investors will eye a press conference by Chair Janet Yellen at the end of the meeting to gauge the Fed’s view on further increases.

Oil slid further, with Brent crude down 4 percent and US West Texas Intermediate nearly 3 percent at midday in New York, amid persistent concern about worldwide oversupply at a time of weakening demand in the global economy. In overnight trade US oil briefly dipped below US$35 a barrel.

"It's the (Fed) communiqué that's going to count, but the real problem here is the junk bond market, which is tied to oil prices,” Peter Cardillo, chief market economist at First Standard Financial in New York, told Reuters. ”A lot of paper written to oil companies are in question, and so it ties in with the price of oil.”

Wall Street moved lower. In 12.04pm trading in New York, the Dow Jones Industrial Average fell 0.2 percent. In 11.49am trading, the Standard & Poor’s 500 Index dropped 0.8 percent, while the Nasdaq Composite Index shed 0.7 percent.

Other commodities also fell. Gold for immediate delivery shed 0.3 percent to US$1,071.39 an ounce.

“Nobody is ready to go in and buy and at the moment the sentiment is stay out of the commodities, oil and high-yield sector,” Benno Galliker, a trader at Luzerner Kantonalbank in Lucerne, Switzerland, told Bloomberg. “If you have any performance left you want to secure it before the year-end. The big news is on Wednesday with the Fed hiking rates, but until then, the market will react to everything.”

The Dow fell as slides in shares of DuPont and those of Apple, last trading 4 percent and 2.9 percent weaker respectively, outweighed gains in shares of Exxon Mobil and those of Travelers, last trading 0.9 percent and 0.8 percent higher respectively.

Shares of Apple fell as Morgan Stanley and Barclays downgraded their price targets on the stock.

Shares of GoPro also lost favour with some analysts. Morgan Stanley and Citi cut their ratings and price targets on the stock. It last traded 16.5 percent lower.

“Likelihood that high inventory persists into 2016, slower consumer drone opportunity, and later assumed HERO 5 compels us to cut estimates,” Morgan Stanley analyst James Faucette wrote in a note to investors, according to Bloomberg.

US Treasuries also declined, pushing yields on the 10-year note six basis points higher to 2.19 percent.

In Europe, the Stoxx 600 Index finished the session with a 1.8 percent slide from the previous close, thanks to a drop in mining and energy stocks. The UK’s FTSE 100 Index declined 1.3 percent, France’s CAC 40 Index retreated 1.7 percent, while Germany’s DAX Index shed 1.9 percent.

BusinessDesk.co.nz

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