Selloff from oil to metals to crops halts global rally in stocks

[SINGAPORE] A deepening slump in commodities put an end to a five-day rally in global stock markets and dragged down currencies of raw-material-producing nations.

A rout in metals pushed nickel down more than 5 per cent and left copper at the cheapest price since 2009. Soybeans also slid to a six-year low and crude oil extended its drop below US$42 a barrel, leaving the Bloomberg Commodity Index at its lowest level since 1999. Russia's ruble and New Zealand's dollar dropped the most versus a rallying dollar and energy producers weighed on European stocks. Bonds slid before a supply glut.

Bloomberg's gauge of 22 raw materials prices tumbled about 23 per cent this year, dragged down by slowing demand in China and a stronger dollar, which makes commodities more expensive for buyers in other currencies. The greenback has climbed versus all of its 16 major counterparts this year as the Federal Reserve prepares to raise interest rates, and John Williams, president of the Fed Bank of San Francisco, said at the weekend that there was a "strong case" for a move next month.

Agricultural commodities face a new headwind after Sunday's election of Mauricio Macri as Argentina's president, which may unleash an estimated US$8 billion in shipments of stored crops.

"Materials companies are leading the sharp drop as several commodities are at a multi-year low," said Soeren Steinert, associate director for equities trading at Quoniam Asset Management in Frankfurt.

Commodities are falling on the possibility of a US "interest rate hike and probably people are thinking the world won't grow at the same rate anymore."

Copper fell through US$4,500 a metric ton for the first time since 2009, and was 2.4 per cent lower at US$4,472.50 a metric ton at 11.09 am London time. The MSCI All-Country World Index fell 0.3 per cent.

Commodities West Texas Intermediate crude futures fell 2.9 per cent to $40.67 a barrel. Oil prices may drop to as low as the mid-US$20s a barrel unless OPEC takes action to stabilize the market, Venezuelan Oil Minister Eulogio Del Pino said. Saudi Arabia and Qatar are considering his country's proposal for an equilibrium price at US$88 a barrel, he said.

Gold for immediate delivery was down 0.8 per cent at US$1,069.05 an ounce. Assets in exchange-traded products backed by gold have fallen to the lowest since 2009. Money managers are holding a net-short position in the metal for first time since August as their long wagers shrunk to the smallest in seven years. Zinc lost 2.8 per cent, giving up gains made on Friday after Chinese smelters announced plans to cut production.

The London Metal Exchange's index of six industrial metals has plummeted 27 per cent this year, the worst annual performance since the global financial crisis in 2008.

"Demand is still the key for commodities at the moment, and supply discipline and production cuts are uncertain," said Helen Lau, analyst at Argonaut Securities in Hong Kong.

"There's a chance that local producers will continue to ramp up production and replace the cuts that have been made. Everyone still wants to maintain cash flow at these prices."

Soybeans slid 1.3 per cent. Argentinian farmers are hoarding as many as 22 million tons of the commodity, about one-third of last season's record crop, according to Miguel Bein, the main economic adviser to presidential candidate Daniel Scioli, who conceded to Macri on Sunday following a runoff vote between the two.

A slide in commodity producers sent the Stoxx Europe 600 Index down 0.5 per cent even after a report showed that economic activity in the euro area reached a 4 1/2-year high. The MSCI Asia Pacific excluding Japan Index retreated 0.3 per cent, with materials shares losing 0.8 per cent. BHP Billiton declined 2.1 per cent. Standard & Poor's 500 Index E-mini futures expiring next month fell 0.2 per cent after the gauge had its biggest weekly jump of the year.

RWE AG declined 4.8 per cent after a report that its chief executive officer is having trouble finding funding for growth. Credit Suisse Group AG dropped 2 per cent after completing a share placement for 1.32 billion francs (S$1.8 billion). Playtech Plc tumbled 9.2 per cent after agreeing to terminate a merger agreement with Plus500 Ltd.

Home Retail Group Plc gained 6.4 per cent after a report that private-equity companies are considering a bid for the UK retailer.

Reports in the US will show that a manufacturing gauge slipped in November, and existing home sales declined in October, according to economist estimates.

The Bloomberg Dollar Spot Index, which tracks the US currency versus 10 major counterparts, rose 0.3 per cent. The currencies of commodity-producing nations dropped most with Russia's ruble weakening 1.8 per cent and New Zealand's dollar losing 0.9 per cent. A Bloomberg gauge of 20 developing-nation currencies declined for the first time in five days, falling 0.4 per cent.

"Emerging markets are under pressure as US raising interest rates in December is a done deal," said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong. "The dollar will get stronger while China's economic fundamentals haven't shown any signs of improvement."

The euro earlier sank to a seven-month low of US$1.0601 after European Central Bank chief Mario Draghi said Friday that he and his fellow bank officials "will do what we must" to boost price growth.

The MSCI Emerging Markets Index dropped 0.4 per cent after the biggest weekly gain in more than a month. The Hang Seng China Enterprises Index fell for the first time in three days, sliding 0.7 per cent. Guotai Junan International Holdings Ltd tumbled 12 per cent after the brokerage said its chairman and chief executive officer can't be contacted. The Shanghai Composite Index declined 0.6 per cent after regulators gave the green light to initial public offerings following a five-month freeze. The China Securities Regulatory Commission has restarted IPOs for five companies to list on the Shanghai stock exchange and five in Shenzhen, according to a statement on its official microblog on Friday.

Argentine exchange-traded funds extended gains after Macri's election victory. The Global X MSCI Argentina ETF rose 0.4 per cent in German trading and global depositary receipts for Grupo Clarin SA, an Argentine media business, climbed 2.9 per cent, heading toward the highest close since 2008.

Government bonds across the euro-area fell before a week of auctions of benchmark securities starting with Belgium on Monday. Germany's 10-year yield climbed five basis points to 0.53 per cent and Italy's rose four basis points to 1.53 per cent.

Treasuries also declined, following a two-week advance, with 10-year yields increasing two basis points to 2.29 per cent, according to Bloomberg Bond Trader data. The US is scheduled to sell US$26 billion of two-year notes Monday.

Bonds of CMA CGM SA fell after the French container- shipping line entered exclusive talks to acquire Singapore-based Neptune Orient Lines Ltd. Its 725 million euros of notes due in January 2021 dropped to 90.695 cents, the lowest on a closing basis since Sept 30.

The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies rose one basis point to 71 basis points. An index of default swaps on junk-rated companies rose two basis points to 296 basis points.

BLOOMBERG