Crude oil’s fall weighs on stock markets; govt bonds firmer

Crude oil’s fall weighs on stock markets; govt bonds firmer
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First Published: Mon, Jun 22 2009. 11 31 PM IST

Ample supply: Oil barrels in a refinery in Basseterre, West Indies. US crude oil fell 1.8% to $68.30 a barrel, hit by a firm dollar, weak fuel prices. Eduardo Munoz / Reuters
Ample supply: Oil barrels in a refinery in Basseterre, West Indies. US crude oil fell 1.8% to $68.30 a barrel, hit by a firm dollar, weak fuel prices. Eduardo Munoz / Reuters
Updated: Mon, Jun 22 2009. 11 31 PM IST
London: World stocks slipped on Monday and government bonds rose as a decline in oil and commodity prices weighed on resource stocks and caution ahead of this week’s data weighed on risky assets.
Ample supply: Oil barrels in a refinery in Basseterre, West Indies. US crude oil fell 1.8% to $68.30 a barrel, hit by a firm dollar, weak fuel prices. Eduardo Munoz / Reuters
US crude oil fell 1.8% to $68.30 (Rs3,305.72) a barrel, hit by a firmer dollar and weak petrol prices after investors grew concerned there would be ample fuel supply in the US to meet demand during the summer holiday season.
A fall in energy prices hurts profits on energy companies, which make up nearly 22% of the equity index in London.
General concerns about the economy persisted with the World Bank warning that the prospects for the global economy remained unusually uncertain.
Angel Gurria, head of the Organization for Economic Cooperation and Development, also warned in an interview with Reuters that major economies will contract this year and the issue of unemployment will linger.
“The worst should be over but the ongoing improvement is likely to be too weak to seriously discuss a recovery,” said Carsten Brzeski, economist at ING Financial Markets Llc.
The MSCI World Index fell 0.5%, after posting its first weekly loss since mid-May last week.
Oil and gas shares were down about 2.5% and were one of the biggest losers of the day.
Copper futures eased some 3% to a three-week low, driven by a firmer dollar and demand worries.
The FTSEurofirst 300 Index fell 1.3%, led by energy shares. Mining stocks rose after global miner Xstrata Plc. said it wanted talks with its rival Anglo American Plc. about a proposed merger of equals worth about $68 billion.
Anglo American’s shares rose nearly 10% at one point.
Emerging stocks lost 0.5% on the day. US stock futures were down around 0.9%, pointing to a weaker open on Wall Street later.
Even with a recent setback, world stocks are up more than 7% this year.
“We’ve been comfortable in overweighting equities. In equities, we expect modest double-digit or high single-digit returns this year,” Rick Lacaille, chief investment officer at State Street Global Advisors, told Reuters television.
“We remain of the view that equities offer a reasonable value. There’s enough return for us to overweight.”
A closely watched German Ifo survey showed investor morale improved in June, with its business climate index rising to 85.9 from an upwardly revised 84.3 in the previous month.
The euro was the day’s major loser, falling 0.8% to $1.3835, ahead of the European Central Bank’s first ever one-year refinancing operation on Wednesday, aimed at getting banks lending again and reducing the cost of borrowing for banks, firms and consumers.
The dollar rose 0.6% against a basket of major currencies ahead of the Federal Reserve’s (Fed’s) monetary policy meeting later this week.
Investors are split on whether the Fed will expand its existing $300 billion plan to purchase treasurys when it meets.
If the Fed announces a plan to expand its purchase programme, investors who had fled treasurys in search of higher yields might return to lock in recently elevated yields.
“Even though yields have soared, there are no concrete signs that lending in the economy is picking up steam and other monetary indicators such as the money multiplier is still near post-collapse levels,” UBS AG said in a note to clients. “Our economists expect changes in the FOMC (Federal Open Market Committee, a component of the Federal Reserve System that oversees the US’ open market operations) statement will reflect a bit more optimism on the prospects for recovery but also a stronger signal that there will be no rush to unwind stimulus.”
The benchmark 10-year treasury yield fell slightly to 3.7377%.
The June Bund (the German government’s federal bond) future rose 18 ticks.
Investors were also cautious ahead of a record $104 billion auction of treasurys this week.
Tamawa Desai and Farah Master contributed to this story.
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First Published: Mon, Jun 22 2009. 11 31 PM IST