BackUS stocks sink with oil, while Brazil assets drop on election
The S&P 500 Index lost 0.6% after the gauge rallied 4.1% last week
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London/New York: Brazilian assets tumbled following President Dilma Rousseff’s re-election and US equities sank with oil prices. European stocks declined, led by Italian lenders after balance sheet tests of the region’s banks.
The Standard & Poor’s 500 Index lost 0.6% at 10:07 am in New York after the gauge rallied 4.1% last week. Brazil’s real weakened to a nine-year low against the dollar on closing basis, Petroleo Brasileiro SA tumbled 11% and the iShares MSCI Brazil Capped ETF dropped 6.2%. The Stoxx Europe 600 Index slid 1%. West Texas Intermediate (WTI) crude dropped below $80 a barrel to a 28-month low and raw sugar retreated 1.8% as commodities fell to the lowest since 2009.
Rousseff’s re-election damped speculation for a change in policies that wiped out $553 billion of stock market value and left the economy in recession. Banca Monte dei Paschi di Siena SpA, the Italian lender with the biggest hole from Europe’s bank health check, led the decline. A gauge of Germany’s business climate dropped for a sixth month to the lowest since 2012, adding pressure to European assets. Goldman Sachs Group Inc. cut its oil price forecasts, predicting supply growth from non-Opec (Organization of the Petroleum Exporting Countries) producers will outpace global demand.
“There could be some profit-taking after that big move we had on Friday with investors reducing risk ahead of the Fed this week," Todd Salamone, senior vice-president of research at Cincinnati-based Schaeffer’s Investment Research, said by phone. “There could be some reaction to the banking stress tests. They weren’t disappointing, but there’s a lot of focus on Europe and what the ECB may do with stimulus."
Fed Watch
The S&P 500 surged 4.1% last week for its best performance since January 2013, halting a four-week slide amid better-than-estimated earnings and data signalling a strengthening economy even as the Federal Reserve prepares to end its bond purchases after its meeting this week.
Data on Monday indicated uneven economic growth in the world’s largest economy. Contracts to purchase previously owned homes rose less than forecast in September, showing housing will take time to gain momentum. Another release showed growth in services activity slowed this month.
Among stocks moving on Monday, Newfield Exploration Co. sank 6.9% to lead energy producers in the S&P 500 lower by 2.8%.
More than four shares declined for every one that advanced in the Stoxx 600, with trading volume 46% greater than the 30-day average, according to data compiled by Bloomberg.
Monte dei Paschi sank 21%. The bank, which must replenish €2.1 billion ($2.7 billion) within nine months to meet European Central Bank (ECB) requirements for capital buffer, hired UBS AG and Citigroup Inc. to explore all strategic options.
More Work
“There are still a lot of problems to fix, and Italian banks still have a lot of work to do," said Michael Woischneck, a money manager at Lampe Asset Management in Dusseldorf, Germany. “Even for the banks that passed, what is there to be relieved about? They still have to find a business model and figure out how to get back into lending."
The Ibovespa lost 5.1%. The yield on Brazil’s January 2025 dollar bond rose six basis points to 4.15%.
Rousseff, who has maintained record-low unemployment even as the economy recorded the slowest growth under any Brazilian president in more than two decades, had 52% of the vote with 99.99% of ballots counted by the electoral court in Brasilia. The Ibovespa had lost 25% since Rousseff took office in January 2011, while shares of Petrobras tumbled 40% and the real weakened 33% against the dollar.
Oil, Sugar
The Bloomberg Commodity Index of 22 raw materials fell 0.6% to lowest since July 2009, led by agriculture items produced by Brazil on speculation a slump in the country’s currency will fuel exports.
Raw sugar dropped to 15.99 cents a pound, the lowest since 2 October. Arabica coffee declined to $1.88 a pound and soybeans retreated 0.7% to $9.765 a bushel. Brazil is the biggest exporter of all three.
Brent crude slipped 1.6% to $84.77 a barrel and WTI oil dropped 1.8% at $79.58 a barrel.
WTI will trade at $75 a barrel in the first quarter, down from an earlier estimate of $90, Goldman analysts including Jeffrey Currie in New York said in a report on Sunday. Banks including Barclays Plc, Bank of America Corp. and Citigroup Inc. have already reduced their estimates after both grades collapsed into a bear market amid rising global supplies. Bloomberg
Kevin Buckland in Tokyo, Adam Haigh in Sydney, Cecile Vannucci, Claudia Carpenter, Abigail Moses and Sofia Horta e Costa in London and Nick Gentle in Hong Kong also contributed to this story.
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