Global stocks extend loss as US rate speculation lifts dollar

BLOOMBERG

Stocks dropped around the world as the dollar extended gains into a fifth day, with the potential for higher U.S. interest rates again roiling financial markets as the Easter vacation looms.
European shares have fallen every day this week, with raw-materials producers sliding as the Bloomberg Commodity Index declined. U.S. stock-index futures also dropped. Oil was poised for the first weekly decline since mid-February as data showed a bigger-than-expected increase in U.S. stockpiles, and iron ore fell for a third day, denting emerging markets. The dollar strengthened against all 16 major peers, while Malaysia’s ringgit tumbled. Gold fell to a one-month low. Government bonds rose in the euro area, while credit markets weakened.
After upsetting markets in August and again in early February, the prospect of higher U.S. interest rates is returning to the spotlight, as regional Federal Reserve presidents indicate support for a raise as soon as April. While the Fed’s recent halving of its projection for this year’s increases spurred global stock gains and depressed the dollar, the more bullish tone from officials is now supporting a surge in the greenback that’s hurting the mostly dollar-denominated commodity market. Still, global stocks markets ended last year higher than where they were before the Fed increased rates in December. “It’s a clear situation that the Fed would like to move earlier rather than later just in order to get the policy rates away from the zero lower bound,” said Marius Daheim, a senior rates strategist at SEB AB in Frankfurt. “The Fed wants to see market consensus on its move before it does move. Past experience has shown that if the Fed sets itself against market sentiment, its actions and rhetoric can cause selloffs in risk assets.”
Traders are pricing in only a 6 percent probability for a boost in borrowing costs at the central bank’s April meeting, with the possibility of a June hike seen at 38 percent. In the meantime, investors are weighing international data and commentary for indications of the strength of global growth. Chinese Premier Li Keqiang reiterated Thursday that expansion is the top priority in the world’s second-biggest economy and measures can be introduced if needed to ensure the government’s target is met. Taiwan cut its benchmark rate for a third consecutive quarter.
Financial markets across most of Asia, Europe and North America will be closed on Friday for holidays.

Stocks
The MSCI All Country World Index fell 0.6 percent as of 12:31 p.m. in London, after sliding 0.8 percent on Wednesday. The Stoxx Europe 600 Index retreated 1.3 percent, heading for its longest losing streak in six weeks. The volume of shares changing hands was 30 percent lower than the 30-day average.
Anglo American Plc and ArcelorMittal lost at least 7 percent, dragging a gauge of European miners toward its lowest level in three weeks. Tullow Oil Plc and SBM Offshore NV tracked declines in crude prices. Next Plc slumped 13 percent after cutting its annual sales-growth forecast.
Europe’s benchmark equity gauge is on track for a 1.8 percent weekly drop. It hasn’t posted back-to-back gains since it reached a two-month high on March 14, signaling a loss of momentum for the rally that more than halved its 2016 decline. Mitsui & Co. dropped 7.5 percent in Tokyo after the trading company forecast its first loss since it was founded in its modern form in 1947.
Futures on the Standard & Poor’s 500 Index declined 0.5 percent, indicating U.S. equities will extend losses into a third day. Data showed Thursday that filings for U.S. unemployment benefits last week rose less than economists forecast, and orders for durable goods fell in February for the third time in four months.

Emerging Markets
The MSCI Emerging Markets Index fell 1.1 percent and is set for 1.7 percent drop this week after entering a bull market on Friday.
In China, the Shanghai Composite Index fell 1.6 percent, the most in two weeks. PetroChina Co. was the biggest drag on the gauge after posting its weakest annual profit since 1999. The Hang Seng China Enterprises Index of mainland shares listed in Hong Kong dropped 1.9 percent.
The Bloomberg GCC 200 Index of Gulf stocks headed for its first weekly decline in six, with benchmark gauges in Abu Dhabi, Dubai, Qatar and Saudi Arabia losing at least 1.4 percent on Thursday.

Currencies
Emerging-market currencies fell for a second day, with a gauge of 20 exchange rates losing 0.3 percent. It’s down 0.8 percent on the week, heading for the first decline this month and trimming the gain in March to 4 percent. That would still be the best month since March 2014.
South Africa’s rand and Malaysia’s ringgit were among the biggest decliners, depreciating 0.9 percent. Russia’s ruble fell 0.9 percent as oil retreated.
The yuan traded in Hong Kong dropped 0.24 percent to 6.5225 per dollar, the weakest since March 16, according to data compiled by Bloomberg. The People’s Bank of China lowered its reference rate by 0.33 percent, the most since Jan. 7.
The Bloomberg Dollar Spot Index rallied for a fifth day, its longest winning streak in two months. Japan’s yen fell 0.4 percent versus the dollar. The U.K. pound pushed its run of declines against its U.S. counterpart to a fifth day, sliding to its lowest level in a week.
St. Louis Fed President James Bullard said the Fed should consider raising interest rates in April amid a broadly unchanged economic outlook and prospects of inflation and unemployment exceeding targets.

Commodities
Oil extended its decline after the biggest loss in six weeks as U.S. crude stockpiles rose again, remaining at the highest level in more than eight decades. Inventories expanded by more than three times what was projected in a Bloomberg survey, Energy Information Administration data showed.
West Texas Intermediate fell 2 percent to $38.98 a barrel and Brent dropped 1.9 percent to $39.72.
Gold erased an earlier decline, rising 0.3 percent to $1,223.29. Iron ore sank 5.3 percent to $50.20 a ton in Singapore. Copper declined 0.7 percent to $4,915 a ton in London while zinc lost 2.8 percent.

Bonds
Benchmark Treasury 10-year notes advanced for a second day, pushing the yield down by one basis point to 1.87 percent, adding to a six-basis-point drop from Wednesday. U.S. sovereign bonds have returned 2.6 percent since the end of 2015, set for the best quarter since June 2012, according to Bloomberg World Bond Indexes.
Germany’s bund yield fell two basis points to 0.17 percent, and reached a two-week low. The yield on Australian government bonds due in a decade fell seven basis points to 2.58 percent.
Long-term Japanese bonds retreated, pushing the 40-year yield up by 10 basis points to 0.57 percent, as the Bank of Japan scaled back its purchases of securities due in a decade or more. Debt due in March 2055 yielded 1.4 percent at the start of this year.
“The BOJ’s cut in bond-buying is leading to the weakness in super-long maturities,” said Jun Fukashiro, senior fund manager in Tokyo at Sumitomo Mitsui Asset Management. “With yields at these levels, the BOJ is the only buyer.”
The cost of insuring corporate debt rose, heading for the longest gains since early February. The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies climbed for a fourth day, rising two basis points to 76 basis points. An index of swaps on junk-rated companies posted a third straight increase. It rose 12 basis points to 320 basis points.