WELLINGTON (BLOOMBERG) - Oil breaking below US$40 a barrel ignited losses in equity markets, with energy producers and mining stocks driving declines in Asia. Precious metals plumbed multi-year lows while the dollar gained after Federal Reserve Chair Janet Yellen reinforced expectations for a December rate hike.
US crude was just above US$40 a barrel, after sliding to US$39.94 in the previous session amid signs of discord among members before Friday's Opec meeting in Vienna. Commodity producers from Australia to Japan retreated following an energy- led slump in the U.S. Gold reached the lowest since February 2010 and silver dropped as much as 1.2 per cent. The euro held near its weakest since April ahead of the European Central Bank meeting Thursday, as the dollar strengthened, particularly against its emerging-market peers.
The ECB is expected to further reduce its deposit rate and expand asset purchases at the meeting, kicking off a crucial 48- hour period for global markets. Yellen will speak before Congressional lawmakers Thursday and November payrolls data is due Friday, probably the most-anticipated piece of American data to land ahead of the Fed's Dec 16 interest-rate decision. While the potential divergence in world monetary policy is a focus for investors, oil's selloff is a complicating factor, with the Organization of Petroleum Exporting Countries having shown few signs that it will vote to trim output this week.
Stock losses have been "magnified by the fall in the oil price," said Shane Oliver, head of investment strategy in Sydney at AMP Capital Investors Ltd., which oversees about $110 billion. "The US economy has had the training wheels support of ultra-easing monetary policy, and suddenly they're being told by their parent - the Fed - it's time to take them off. Naturally, the markets, like the child, are feeling nervous." Stocks The MSCI Asia Pacific Index lost 0.4 per cent as of 11.04am Tokyo time, as more stocks fell than rose on Japan's Topix index.
Australia's S&P/ASX 200 Index slipped 0.6 per cent, with sub-gauges of energy and raw materials stocks falling at least 1.4 per cent. The Kospi index in Seoul declined 1 per cent despite a better-than-expected reading on Korean third-quarter gross domestic product, while New Zealand's S&P/NZX 50 Index fell 0.4 per cent.
"The decline in commodity prices is reflecting the downturn in global economic conditions, with emerging countries at the center of that," said Mitsushige Akino, executive officer at Ichiyoshi Asset Management Co. in Tokyo.
Chinese equities declined, with Hong Kong's Hang Seng index down 0.5 per cent, while the Hang Seng China Enterprises Index, a measure tracking mainland Chinese shares listed in the city, dropped 0.7 per cent. The Shanghai Composite Index retreated 0.3 per cent.
In Singapore, the Straits Times Index was 14.46 points or 0.5 per cent lower at 2,869.18 points at 10.45am.
Energy producers drove a 1.1 per cent decline in the Standard & Poor's 500 Index last session, with West Texas Intermediate crude ending the day down 4.6 per cent. S&P 500 futures added 0.1 per cent Thursday.
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, gained 0.1 per cent after climbing 0.2 per cent last session, its fifth increase in six days. Yellen said in a speech that the US economy is ready for higher borrowing costs in a, echoing rhetoric from her colleagues at the Fed just two weeks before their final meeting of the year. Yellen appears before the Congressional Joint Economic Committee Thursday, and Vice Chair Stanley Fischer will also speak.
A report from the ADP Research Institute Wednesday showed the U.S. added the most workers in five months in November, indicating government payrolls data due later in the week may be stronger than some analysts expect. The odds of a rate increase in December held at 72 per cent.
Asian emerging-market currencies played catch-up, with the Korean won weakening for a sixth straight day and the Malaysian ringgit's 0.3 per cent slump compounded by oil's retreat. Malaysia is Asia's only major net oil exporter.
"It's the same old story with commodities, in particular oil, under pressure," Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. "That's clearly a negative for the Malaysian ringgit." The euro was down 0.1 per cent at US$1.0603 after weakening 0.2 per cent on Wednesday as readings on inflation came in near zero, reinforcing the potential need for more economic stimulus in the region.
Australia's dollar fell 0.2 per cent in a second day of losses after a government report showed a greater-than-expected October trade deficit, driven by a 3 per cent decline in exports.
Australian government debt led declines, with 10-year yields rising three basis points, or 0.03 percentage point, to 2.83 per cent. Similar maturity Japanese notes yielded 0.32 per cent, holding onto Wednesday's two basis-point climb.
The Markit iTraxx Asia index of credit-default swaps rose 2 basis points to 130 basis points as of 8.32am in Singapore, according to prices from Westpac Banking Corp. That's set for the biggest daily increase in almost a week, according to data provider CMA.
Treasuries maintained losses, with yields on debt due in a decade at 2.18 per cent following a four basis-point advance last session. Yields on two-year Treasury notes were steady at 0.94 per cent, after the ADP report pushed the rate on the policy- sensitive bond to near its highest level since 2010.
WTI futures rose 0.5 per cent to US$40.12 a barrel after sinking the most since Oct 12 on Wednesday.
A majority of Opec members agree on an output cut, with the exception of Saudi Arabia and Gulf Arab countries, the Iranian Oil Ministry's Shana news agency said. Crude has slumped almost 40 per cent since the Saudis drove a decision by Opec in November last year to maintain production levels and defend market share against higher-cost shale oil producers.
Exacerbating concerns over the global oil glut, U.S. inventories also rose by 1.18 million barrels for a 10th weekly gain, according to a report from the Energy Information Administration.
Gold for immediate delivery dropped 0.4 per cent to US$1,049.97 an ounce, and touched US$1,046.44, its lowest level since February 2010, according to Bloomberg generic pricing. Silver fell to US$13.8423 an ounce, a level last seen in August 2009.
Copper retreated 0.5 per cent to US$4,541 a ton on the London Metal Exchange, after sinking 1.5 per cent in the previous session. Private data showed expansion slowed in the services sector in China, the world's biggest consumer of industrial metals. generic pricing. The London Metal Exchange index of six base metals has slumped 26 per cent this year and is heading for its worst annual performance since the global financial crisis in 2008.
The Bloomberg Commodity Index slid back on Wednesday to its weakest level since 1999.