Oil Drags Energy Stocks Lower
The stock market finished last week on a heady note, with the S&P 500 Index and Dow Jones both lifted to record levels by a superlative non-farm payrolls report.
Tuesday, December 9, 2014 - 00:00
It’s been a different story at the start of the new week, however, with share prices beating a modest retreat without the impetus of any major economic news releases on the domestic front.
By early afternoon in New York, the Dow Jones had fallen 0.30% or 53 points to 17,905, while the S&P 500 index slid 0.66% or 13.7 points to 2061.7.
A significant drag on the stock market has been the energy sector, which is naturally suffering from the vast decline in the price of oil. The bear trend in oil continued unabated today, with more sharp falls in Brent crude and US light crude, the two major oil benchmarks. US light crude futures slumped 3.8% to $63.40 a barrel, hitting a five-year low earlier in the trading session. Oil is the victim of a situation where supply is seen to be outweighing demand, a condition that has been exacerbated by OPEC’s refusal at its November meeting to choke back on production levels in order to try and re-balance the state of play. The oil components in the Dow Jones have been at the forefront of the index’s losses today as a consequence: Exxon Mobil (XOM) declined 2.5% and Chevron (CVX) dropped nearly 4%.
In the forex market, the Loonie weakened against the US dollar after housing starts in Canada for November came in lower then expected. Construction on new residential buildings was at an annualized pace of 195,620 last month, an improvement on October’s 183,064, but short of the consensus estimate for 200,500. USD/CAD rose 0.27% to 1.1466.
Caution boosts yen ahead of Japanese election
The Japanese yen has rallied sharply today, despite GDP for Japan being revised lower in the second estimate for the third quarter. The original estimate had been a contraction of 0.4%, but this was lowered to a 0.5% contraction, significantly worse than had been expected. In a separate report, Japan’s current account surplus swelled in October to JPY 833 billion ($6.85 billion), the largest surplus seen for Japan in a year and a half and more than double the consensus estimate, with the historical weakness of the yen (recently slipping to a seven-year low against the dollar) boosting the country’s exports.
The Japanese people are set to vote in a snap election called for December 14 by Prime Minister Shinzo Abe, in which Mr Abe’s Liberal Democratic Party is expected to win. While that result may boost the ‘Abenomics’ drive to stoke inflation (which should weaken the yen, all other things being equal), today’s rise in the value of the yen could well be the result of traders covering short positions ahead of election uncertainty. USD/JPY fell 0.76% to 1.2058 by mid-afternoon in New York.
The US economic calendar has been quiet today and that state is set to continue until the latter part of the week, when we have November’s retails sales data (Thursday) and a first glimpse of consumer sentiment for December (Friday).
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