European Shares Decline With Banks as Oil Trades at 12-Year Low

Frankfurt (Jan 18)  European shares fell for a third day, led by banks, as crude oil dropped to a 12-year low on the outlook for increased exports from Iran.

The Stoxx Europe 600 Index dropped to a 13-month low, with banks declining on concern the quality of their assets may harm profits. Oil touched the lowest since November 2003 after the lifting of international sanctions on Iran paved the way for increased supply amid a global glut. Polish bonds fell after the country received its first-ever sovereign downgrade. Contracts on the Standard & Poor’s 500 Index slid after the index fell Friday to its lowest closing level since August. U.S. markets are closed for a holiday Monday.

Oil’s decline and slowing growth in China sparked volatile trading at the start of 2016 that has left the Stoxx Europe 600 Index in a bear market. Iran is aiming to raise shipments by 500,000 barrels of oil a day amid the removal of sanctions, adding to a global glut that’s dragged prices 21 percent lower this year. Figures Monday indicated improvement in China’s property sector, ahead of data Tuesday that will include an update on fourth-quarter gross domestic product.
 
“Volatility indexes are on levels which are far away from calm waters,” said Guillermo Hernandez Sampere, head of trading at MPPM EK in Eppstein, Germany. “We are still in risk-off mode, so don’t expect a ‘V-shaped’ correction to the upside. As a value investor, we see this as a buying opportunity for the mid or long term.”

The Stoxx Europe 600 fell 0.4 percent as an index of banking stocks dropped 1.9 percent. Brent crude futures were down 0.5 percent at $28.81 a barrel as of 5:13 p.m. in London, after falling as much as 4.4 percent. Brazil’s Ibovepa stock gauge slumped 0.7 percent, while the S&P/Toronto Stock Exchange Composite Index traded 0.9 percent lower.

Equities

Eleven of the Stoxx 600’s 19 industry groups fell. Oil and gas companies rose 0.1 percent, while makers of household goods rose 0.7 percent. Total SA gained 1.1 percent and BP Plc added 0.7 percent. Banca Monte dei Paschi di Siena SpA tumbled 15 percent, a drop its chief executive said was unjustified. UniCredit SpA lost 5.4 percent.

Ericsson AB led technology shares higher, adding 2.9 percent after Nordea Bank AB raised its recommendation to buy from hold.

The Bloomberg GCC 200 Index climbed 0.3 percent despite the decline in oil.

Commodities

Brent oil earlier extended its decline below $28. Prices pared losses after the Organization of Petroleum Exporting Countries, which supplies about 40 percent of the world’s oil, predicted production outside its members would drop this year by 660,000 barrels a day. That deepened the decline from its previous estimate by 270,000 barrels a day.

Nickel led base metals higher in London on optimism that China will see an increase in demand and its economy will avoid a hard landing. The metal used to produce stainless steel rose as much as 3 percent to $8,650 a metric ton.

Emerging Markets

The MSCI Emerging Markets Index fell for a third day, slipping 0.7 percent, and the Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong sank 1.2 percent to a four-year low.

The Shanghai Composite Index rose 0.4 percent after a home-price recovery spread to more cities and speculation grew equities were oversold after the benchmark gauge entered a bear market last week.

Poland’s benchmark equity index dropped 3.2 percent. The country’s bonds fell, sending the yield on 10-year zloty notes up 19 basis points to 3.14 percent. S&P cut Poland to BBB+, the third-lowest investment level, on Friday, and lowered its outlook to negative from positive, warning policies of the new government were imperiling the country’s institutions.

Brazil’s stocks fell to a six-year low as state-controlled oil producer Petroleo Brasileiro SA followed the decline in crude, slumping to the lowest in 13 years. The producer’s decline offset a gain in raw-materials companies including steelmaker Cia. Siderurgica Nacional SA after China stepped up efforts to curb bearish bets on the exchange rate, easing concern that a devaluation of the currency would hurt commodity exporters.

Taiwan’s biotechnology shares led the Taiex up 0.6 percent on speculation president-elect Tsai Ing-wen will increase funding in the industry to bolster economic growth.

Currencies

The yen dropped from close to a four-month high after China’s central bank helped calm investors’ nerves by strengthening the yuan fixing by the most in almost a month.

As havens fell, higher-yielding currencies rebounded, with Brazil’s real outperforming all of its major peers and the Canadian dollar climbing for the first time this year.

“Markets have settled down a bit” following the yuan fixing, said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland. They “still feel quite nervous, but prepared to wait to see what tomorrow’s data brings.”

The offshore yuan strengthened 0.4 percent, building on its biggest weekly gain since October. The cost of borrowing yuan on a weekly basis in Hong Kong rose, while overnight lending rates fell. The People’s Bank of China said it will impose reserve-requirement ratios on yuan deposited onshore by overseas financial institutions from Jan. 25, without saying what level would be used.

Bonds

U.K. government bonds declined for the first time in five days, with the yield on U.K. 10-year gilts adding three basis points to 1.69 percent, after falling 11 basis points last week.

Portuguese bonds extended declines on Monday pushing 10-year yields to their highest since Nov. 13 amid a turmoil in the nation’s banking system. Portugal Prime Minister Antonio Costa said Friday he was concerned by the central bank’s treatment of Novo Banco SA bondholders after some were forced to take losses on their investments. Portugal’s PSI 20 Index dropped 3.4 percent.

The cost of insuring investment-grade corporate debt rose for a ninth day, the longest run since May 2012. The Markit iTraxx Europe Index of credit-default swaps on highly rated companies climbed two basis points to 97 basis points. A gauge of default swaps on non-investment grade companies increased five basis point to 385 basis points, the highest since October 2014.

SOURCE: BLOOMBERG