Oil Surges, Stocks Drop on Mideast Unrest; Gold Hits Record
Traders work at the Frankfurt Stock Exchange in Frankfurt. Photographer: Hannelore Foerster/Bloomberg
March 1 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks slid, sending the Standard & Poor’s 500 Index to its first drop in three days, as concern that rising energy costs will hurt the economic recovery overshadowed the fastest manufacturing growth since 2004. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)
March 1 (Bloomberg) -- E. William "Bill" Stone, chief investment strategist at PNC Wealth Management, talks about the company's March Investment Outlook and PNC's asset-allocation strategy for U.S. stocks. Stone speaks with Carol Massar on Bloomberg Television's "Street Smart." (Source: Bloomberg)
March 1 (Bloomberg) -- Kevin Rendino, a portfolio manager at BlackRock Inc., talks about the U.S. equity market and investment strategy. Rendino, speaking with Betty Liu on Bloomberg Television's "In the Loop," also discusses Federal Reserve monetary policy and costs related to probes of JPMorgan Chase & Co.'s mortgage-servicing procedures. Bloomberg's Michael McKee, Sara Eisen, Jon Erlichman and Sheila Dharmarajan also speak. (Source: Bloomberg)
March 1 (Bloomberg) -- Francisco Blanch, global head of commodities research at Bank of America-Merrill Lynch, talks about the outlook for commodities and the oil and gold markets. Blanch speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
Oil surged to a 29-month high amid speculation unrest in the Middle East and northern Africa will disrupt supplies. U.S. stocks sank on concern rising energy costs will threaten the economic recovery, while Treasuries reversed losses and gold advanced to an all-time high.
Oil for April delivery rallied 2.7 percent to settle at $99.63 a barrel, the highest since Sept. 30, 2008. The Standard & Poor’s 500 Index slid 1.6 percent to 1,306.33 at 4 p.m. in New York after yesterday capping a third straight monthly gain. Ten- year Treasury yields lost three basis points to 3.40 percent after rising six points earlier. Gold futures for April delivery climbed as much as 1.8 percent to a record $1,435.60 an ounce.
Energy prices jumped as unrest threatened to spread from Libya to Iran, OPEC’s second-largest oil producer. Concern higher energy costs will hurt consumer spending and corporate profits overshadowed data showing that U.S. manufacturing grew at the fastest pace since 2004. Federal Reserve Chairman Ben S. Bernanke said the increase in oil and other commodity prices probably won’t cause a permanent increase in broader inflation, suggesting the central bank will continue its stimulus efforts.
“There’s a cloud over the market,” said Burt White, who helps oversee $284 billion as chief investment officer at LPL Financial Corp. in Boston. “We’ve had very strong manufacturing data,” he said. “Bernanke said that the fire is not hot enough for the Fed to take the foot off the gas pedal and put it on the brake. They are committed to spur the economy going forward. Still, the market will struggle as people are more concerned about oil than the strength of the U.S. economy.”
Manufacturing Growth
Energy prices extended gains after the close of regular trading in New York, with oil topping $100. Brent crude for April settlement climbed $3.66, or 3.3 percent, to $115.46 a barrel on the London-based ICE Futures Europe exchange. Gasoline for April delivery settled 3.3 percent higher at $2.9834 a gallon, a 29-month high, and extended its gain in electronic trading afterward, rising as much as 10 percent to $3.0100.
Regular gasoline at the pump, averaged nationwide, advanced 0.8 cents to $3.375 a gallon yesterday, AAA said on its website, the highest level since Oct. 9, 2008.
“Front and center, you’ve got a geopolitical situation continuing to deteriorate with massive upside price risk,” said Jason Schenker, president of Prestige Economics, an energy advisory firm in Austin, Texas. “The worst is probably not over for these crude oil markets.”
The surge in energy prices overshadowed an increase in the Institute for Supply Management’s manufacturing index to 61.4 in February, the highest since May 2004.
‘Modest Increase’
Bernanke said that while sustained rises in oil and other commodities may threaten growth, experience with price gains in recent decades suggests a “temporary and relatively modest increase in U.S. consumer price inflation.”
In his semi-annual monetary policy testimony before the Senate Banking Committee, the Fed chief reiterated the central bank’s outlook that while growth will accelerate this year, he still wants to see a “sustained period of stronger job creation,” suggesting the Fed will stay on course to complete its planned $600 billion of Treasury purchases through June.
Raw-material producers, industrial companies and financial firms led losses in all 10 industry groups in the S&P 500. DuPont Co., General Electric Co. and JPMorgan Chase & Co. fell at least 2.3 percent to pace declines.
Default Swaps Gain
Costs to protect corporate bonds from default climbed after three days of declines. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 2.5 basis points to a mid-price of 84.97 basis points, according to index administrator Markit Group Ltd.
The credit swaps index has increasingly traded in lockstep with oil futures. A measure of correlation between crude futures in New York and the CDX, using 21 days of trading, was 0.59 yesterday and reached the highest since August 2008, according to data compiled by Bloomberg. A correlation of 1, which gauges the percent change of the two contracts, would show they are moving in lockstep, and a -1 reading reflects the opposite.
The Stoxx Europe 600 Index fell 0.6 percent, reversing a gain of 0.9 percent, with banks and travel and leisure companies leading declines among 19 groups. The index climbed earlier after European manufacturing growth accelerated to the fastest pace in more than 10 years in February, according to London- based Markit Economics.
Asian, Emerging Markets
The MSCI Asia Pacific Index advanced 1.1 percent for a third day of gains. Japan’s Nikkei 225 Stock Average rose 1.2 percent as Shinsei Bank Ltd. jumped 7.7 percent after Credit Suisse Group AG upgraded shares of lender partly owned by J. Christopher Flowers.
The MSCI Emerging Markets Index climbed 0.3 percent. India’s Bombay Stock Exchange Sensitive Index jumped 3.5 percent, the most since May 2009, after manufacturing expanded at the fastest pace in three months. The rupee strengthened 0.7 percent against the dollar.
The S&P GSCI Total Return Index of commodities jumped 1.7 percent to the highest since November 2008. Cotton, for the third day in a row, jumped the daily limit of 7 cents, or 3.7 percent.
Metals, crops and fuel beat stocks, bonds and the dollar for a third straight month in February, the longest stretch since June 2008, as inflation lifted cotton and cocoa and investors speculated violence in the Middle East and northern Africa will restrain energy supplies. The S&P GSCI Total Return Index of 24 commodities gained 3.8 percent in February and rose for a sixth consecutive month, the longest streak since 2004, data compiled by Bloomberg show.
Commodities Beat Stocks
The MSCI All-Country World Index of equities in 45 nations returned 3 percent including dividends last month, while corporate and government bonds rose 0.21 percent, according to Bank of America Merrill Lynch’s Global Broad Market Index. The U.S. Dollar Index, a gauge of the currency against six counterparts such as the euro and yen, fell 1.1 percent in February.
Today’s surge in crude oil came as Iran, the second-largest producer in the Organization of Petroleum Exporting Countries, arrested opposition leaders to derail protests scheduled today. The European Union yesterday imposed an arms embargo and other sanctions on Libya, and the U.S. said it has frozen $30 billion in Libyan assets.
Saudi Arabia’s Tadawul All Share Index tumbled 6.8 percent, the most since November 2008, as concern deepened political unrest in the Middle East may spread to the kingdom. Arabian authorities “should immediately release” Tawfiq al-Amir a Shiite cleric in the country, who was apparently arrested after he called for a constitutional monarchy and equal rights for Shiites, Human Rights Watch said on its website yesterday.
Kuwait’s benchmark equity index dropped 2.5 percent as state news agency KUNA reported Emir Sheikh Sabah Al-Ahmed Al- Jaber Al-Sabah will address the country today. The Bloomberg GCC 200 Index of Persian Gulf shares fell 3.7 percent, the most since May.
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