1. Stocks decline with oil as Apple tumbles on forecast; Bonds fall

Stocks decline with oil as Apple tumbles on forecast; Bonds fall

A barrage of uninspiring outlooks from bellwethers including Apple Inc. and Bayer AG sent global equities down. Oil slumped.

By: | Published: October 27, 2016 5:43 AM
The MSCI All Country World Index posted a back-to-back slide as oil retreated after data showed an unexpected decrease in US stockpiles was centered on the West Coast. (Bloomberg) The MSCI All Country World Index posted a back-to-back slide as oil retreated after data showed an unexpected decrease in US stockpiles was centered on the West Coast. (Bloomberg)

A barrage of uninspiring outlooks from bellwethers including Apple Inc. and Bayer AG sent global equities down. Oil slumped. The MSCI All Country World Index posted a back-to-back slide as oil retreated after data showed an unexpected decrease in US stockpiles was centered on the West Coast. Yields on two-year Treasuries, the most sensitive to Federal Reserve expectations, rose to the highest since June as traders bet on tighter policy by December. Italian bonds led losses in the euro-area as a glut of supply from governments and companies weighed on the market.

Equities have failed to gain momentum since the start of the earnings season as traders grapple with disappointing forecasts from behemoths including Apple, Intel Corp. and 3M Co. amid uneven economic data. Meanwhile, investors have assessed the likely trajectory of interest rates and the outcome of U.S. presidential elections, with the next Fed meeting and the vote both due in November.

“Apple earnings were probably in line with expectations, but nevertheless are going to subtract from the S&P,” said Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird. “The markets typically trade defensively in October before an election anyway, I expect more of the same. The market is going to go lower before it goes higher. It’s going to require a springboard and that springboard requires slightly lower prices.”

Stocks

MSCI’s global gauge of equities fell 0.2 percent at 4 p.m. in New York, extending this month’s slide to 1.3 percent.

The S&P 500 Index retreated 0.2 percent to 2,139.43, after swinging between gains and losses. Apple sank 2.3 percent after predicting holiday sales that barely topped analyst estimates amid the first annual revenue drop since 2001. The KBW Bank Index rose to its best level this year, while Boeing Co. surged after reporting a jump in profit.

Among shares moving on earnings news:

Chipotle Mexican Grill Inc. sank to a three-year low as results missed estimates. Southwest Airlines Co. slid after saying a revenue measure may worsen this quarter. Biogen Inc. rallied after its quarterly profit topped estimates. Mondelez International Inc. rose after boosting its earnings forecast. Northrop Grumman Corp. climbed to a record after raising its earnings outlook. Akamai Technologies Inc. and Juniper Networks Inc. surged on better-than-predicted profits.
Losses worsened in the Stoxx Europe 600 Index, which dropped the most in more than a week, as firms from Bayer to builder Vinci SA reported disappointing earnings. Antofagasta Plc led miners down after forecasting a slide in copper production next year.

Industrial shares led declines on the MSCI Emerging Markets Index as South Korea’s industrial-goods makers fell amid speculation there will be more job losses.

Bonds

Treasuries fell as BlackRock Inc.’s Rick Rieder said he considers a December Fed hike a done deal. Traders are pricing in a 73 percent probability of tighter policy by year-end, according to futures data compiled by Bloomberg.

Yields on two-year notes rose for a fifth day, while a gauge of the yield curve steepened as reports showed U.S. wholesale inventories rose more than expected while the service sector expanded more than forecast, boosting the outlook for economic growth. Benchmark U.S. 10-year yields rose four basis points to 1.79 percent.

Italy’s 10-year yield climbed to the highest since June after the country sold inflation-linked debt due in 2024 and 2026. The selloff deepened, with similar-maturity U.K. bond yields approaching the most since the Brexit vote, after the Bank of England said Tuesday there were limits to officials’ willingness to look beyond an overshoot of their inflation target.

Gilts also declined after Britain sold securities due in July 2065 via banks on Tuesday. Portugal auctioned bonds for the first time since DBRS Ltd. maintained the nation’s rating as investment grade. Germany added to the supply, selling five-year notes, while companies including Merck & Co. and Verizon Communications Inc. sold bonds. The Treasury in Rome plans to auction as much as 8.5 billion euros of debt on Oct. 28.

Mozambique’s Eurobonds slumped to a record for a second day after the government hired advisers to negotiate a restructuring that at least one adviser said could involve write downs for investors.

Currencies

The euro advanced from a seven-month low on signs the European economy may be improving enough to reduce pressure on the European Central Bank to further ease monetary policy. The shared currency rose 0.2 percent to $1.0907.

“The recent data has been positive,” said Jane Foley, a senior currency strategist at Rabobank International in London. “That helps to bring some sense of stability into the euro.”

Bloomberg’s Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.2 percent.

Mexico’s peso slid as a Bloomberg poll showed U.S. presidential candidate Donald Trump ahead of Hillary Clinton in Florida. South Africa’s rand slipped as Finance Minister Pravin Gordhan delivered a mid-term budget speech that highlighted downgrades to growth estimates, wider budget deficits and shortfalls in tax collection. The real fell as a drop in commodities outweighed optimism with another victory in Congress for President Michel Temer.

Commodities

Oil futures for December delivery fell 1.6 percent to settle at $49.18 a barrel on the New York Mercantile Exchange. Brent for December settlement slipped 1.6 percent to $49.98 a barrel on the London-based ICE Futures Europe exchange.

Nationwide crude stockpiles fell 553,000 barrels last week, according to the Energy Information Administration. Analysts surveyed by Bloomberg projected a gain and the American Petroleum Institute data showed an increase. Supplies along the West Coast decreased to the lowest since January 2015. But the region is sometimes ignored by traders because its distribution system is isolated from the rest of the country.

“This is a sloppy market,” said Adam Wise, who helps run a $7 billion oil and natural gas bond and private equity portfolio at John Hancock in Boston. “News and changes of sentiment can easily send it moving into the opposite direction. We have mixed signals from today’s data.”

Copper capped its longest stretch of gains this month as a run on stockpiles boosted speculation that demand for the metal is increasing.

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