By Stephen Kirkland & Mark Shenk - Aug 28, 2013 10:34 AM PT
Stocks declined and crude rallied yesterday amid speculation that any strike against Syria may spread to other parts of the Middle East and threaten exports from a region that produces 35 percent of the world’s oil. Photographer: Daniel Acker/Bloomberg
Oil reached a two-year high and energy shares led gains in U.S. stocks amid growing concern there will be an American-led military strike against Syria and speculation a two-day slump in equities was overdone. European shares declined while Treasuries snapped a four-day advance.
West Texas Intermediate oil added 0.8 percent to $109.88 a barrel at 1:29 p.m. in New Yorkafter climbing 3 percent to $112.24. The Standard & Poor’s 500 Index (SPX) added 0.6 percent to 1,639.89 after slumping the most since June yesterday. The Turkish lira and Indian rupee slid to records. The dollar strengthened against 10 of its 16 major peers while the pound climbed from a three-week low versus the euro. Ten-year U.S. note yields rose 7.5 basis points to 2.78 percent as an auction of five-year debt drew the least demand in four years.
Stocks declined and crude rallied yesterday amid speculation that any strike against Syria may spread to other parts of the Middle East and threaten exports from a region that produces 35 percent of the world’s oil. Photographer: Daniel Acker/Bloomberg
Aug. 28 (Bloomberg) -- Gareth Lewis-Davies, an energy strategist at BNP Paribas SA, talks about the prospect of military intervention in Syria and the effect on oil prices. He speaks with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)
Aug. 28 (Bloomberg) -- Sean Fenton, a Sydney-based fund manager at Tribeca Investment Partners, talks about Australian stocks, the nation's economy and central bank monetary policy. Fenton also talks about the political unrest in Syria, the U.S. economy, and capital outflows from Asian emerging markets. He speaks with Mia Saini on Bloomberg Television's "First Up." (Source: Bloomberg)
Aug. 27 (Bloomberg) -- Tim Condon, head of Asian research at ING Groep NV in Singapore, talks about China's economy and stock market. He also discusses the implications of the political unrest in Syria on global financial markets. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move."(Source: Bloomberg)
Aug. 26 (Bloomberg) -- Hao Hong, managing director for research at Bank of Communications Co. in Hong Kong, talks about the outlook for China and Hong Kong stock markets. Hong also discussed capital outflows from Asia. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move." (Source: Bloomberg)
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The U.S. and its allies are moving closer to a military strike against Syria in response to an alleged chemical weapons attack near Damascus last week. President Barack Obamaplans to release an intelligence assessment this week and U.K. Prime Minister David Cameron said Britain will put forward a draft resolution at the United Nations today authorizing action to protect civilians.
“This market is reflecting anxiety about the Middle East,” said Adam Wise, who helps manage a $6 billion oil and gas bond portfolio as a managing director at Manulife Asset Management in Boston. “As long as tension escalates in the region, specifically in Syria and Iran, you can expect prices to move higher. More news-driven price spikes are on the table.”
Broader Conflict
Stocks declined and crude rallied yesterday amid speculation that any strike against Syria may spread to other parts of the Middle East and threaten exports from a region that produces 35 percent of the world’s oil. Saudi Arabia, the largest supplier in the Organization of Petroleum Exporting Countries, has backed rebels opposed to Syrian President Bashar al-Assad. Assad’s allies include Iran, the group’s sixth-biggest producer.
“The fear here is that a strike on Syria will lead to a broader regional conflict vis-à-vis al-Assad’s puppet-master,” Stephen Schork, president of the Schork Group Inc., an energy advisory company in Villanova, Pennsylvania, said in a report today.
WTI crude for October delivery touched the highest since May 2011, while Brent oil climbed 1.3 percent to $115.81 and reached $117.34, the highest since February Brent may rise to as high as $150 a barrel if Middle East conflict disrupts supply, according to Societe Generale SA.
Commodity Movers
The S&P GSCI (SPGSCI) gauge of 24 commodities jumped 0.6 percent to the highest since Feb. 20. Gold added 0.3 percent to $1,419.54 an ounce and silver slipped 0.2 percent to $24.43 an ounce. Copper fell 0.3 percent to $7,290 a metric ton.
The S&P 500 dropped the most in two months yesterday, extending its two-day decline to 2 percent and closing at the lowest level since July 3. Among stocks moving today, energy shares rose 1.9 percent as a group to lead gains among the 10 main S&P 500 industries, with Exxon Mobil Corp. and Chevron Corp. increasing at least 1.9 percent. TiVo Inc. climbed 3.9 percent after the maker of digital-video recorders posted a profit. Joy Global Inc. lost 3 percent as the mining equipment maker said orders for new equipment are declining.
The S&P 500 today climbed back above its average level for the past 100 days after slipping below it yesterday for the first time since June.
“We’re simply just seeing a little bit of bounce back from what was very bad action yesterday,” Walter Todd, who oversees about $950 million as chief investment officer of Greenwood Capital Associates LLC in Greenwood, South Carolina, said by phone. “There are probably starting to be opportunities that are being created in certain segments of the market as a result of this sell-off, and investors are wisely looking to see if they can take advantage of some of those.”
Home Sales
An S&P index of 11 homebuilders lost 1.1 percent, extending yesterday’s 2.5 percent decline. Fewer Americans signed contracts in July to buy previously owned homes, a sign that rising mortgage rates are starting to slow momentum in the housing market. The index of pending home sales dropped 1.3 percent, the most this year, after a 0.4 percent decrease in June, figures from the National Association of Realtors showed today. Economists forecast no change in the gauge from the month before, according to a median estimate in a Bloomberg survey.
Oil and American equities are moving in opposite directions by the most in almost two years amid prospects of military intervention in Syria.
While the S&P 500 slid 1.6 percent yesterday, West Texas Intermediate surged 2.9 percent on the New York Mercantile Exchange. The 4.5 percentage-point divergence was the widest since November 2011, data compiled by Bloomberg show. Crude extended gains today, surging to a two-year high.
Correlation Breakdown
The commodity’s advance amid the biggest retreat in U.S. shares since June shows attention is shifting to armed conflict and away from the world economy. Oil and the S&P 500 have been positively correlated since April 2011 as the global financial crisis receded. The link is breaking down on concern a U.S. attack may escalate and disrupt supplies from the region that holds almost half of all proven oil reserves.
About three shares fell for every one that gained in the Stoxx Europe 600 Index, as the gauge retreated 0.4 percent for a third straight loss. The volume of shares changing hands in Stoxx 600 companies was 18 percent greater than the 30-day average, according to data compiled by Bloomberg.
Airlines Slide
Air France-KLM Group (AF) and Deutsche Lufthansa AG, Europe’s largest airlines, lost at least 2.9 percent as oil climbed. Polymetal International Plc slid 5.8 percent as the Russian gold and silver miner part-owned by billionaire Alexander Nesis posted a first-half loss.
Dubai’s stock market, which has risen more than any benchmark in the 40 largest equity markets in 2013 even as violence in the region spread, slipped 1.3 percent today, extending yesterday’s 7 percent slump that was the most since November 2009. Israel’s benchmark TA-25 Index erased earlier losses after dipping to the lowest level since September 2012.
The MSCI Emerging Markets Index slipped 0.5 percent, extending its two-day slide to 2.3 percent and reaching the lowest level since July 8. Global funds have withdrawn about $44 billion from emerging-market stock and bond funds since the end of May through last week, according to EPFR Global, a Cambridge, Massachusetts-based data provider.
Turkey’s lira dropped as much as 1.7 percent to 2.0730 per dollar, before paring declines and trading 0.3 percent lower. The rupee slumped to as low as 68.8450 versus the dollar.
The dollar strengthened 0.7 percent against the yen and 0.5 percent versus the euro. The Bloomberg U.S. Dollar Index, which tracks the currency against 10 major peers, rose 0.4 percent. The pound climbed 0.3 percent to 1.1646 euros as Bank of England Governor Mark Carney said guidance on interest rates will help the economy as growth prospects are “solid not stellar.”
The U.S. five-year note yield climbed from the lowest level in more than a week, increasing 7.5 basis points to 1.59 percent.
The notes sold today drew a yield of 1.624 percent, compared with a forecast of 1.618 percent in a Bloomberg News survey of eight of the Federal Reserve’s 21 primary dealers.
The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.38, the lowest since July 2009 and compared with an average of 2.74 for the past 10 sales. Benchmark 10-year yields climbed from the lowest level in almost two weeks earlier before a government report tomorrow forecast to show the economy grew more last quarter than previously estimated, fueling speculation the Fed may start to curtail monetary stimulus. Economists estimate 2.2 percent growth in gross domestic product in the second quarter, according to a Bloomberg survey.
To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Mark Shenk in New York at mshenk1@bloomberg.net
To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net
