Oil Slump Sparks Stock Losses as S&P 500 Wipes Out August Gains

(Bloomberg) -- A selloff in oil sent stocks lower, with the S&P 500 Index erasing its August advance, while the dollar maintained gains as traders awaited U.S. jobs data amid ongoing speculation over the outlook for interest rates in the world’s largest economy.

Energy share sled declines as New York-traded crude fell below $45 a barrel on data showing U.S. stockpiles climbed more than analysts had projected last week. The S&P 500 ended the month down 0.1 percent, ending its longest run of gains in two years as it failed to budge more than 1 percent in either direction for a 38th day. The yen extended losses against the greenback, while Brazil’s real rose as President Dilma Rousseff was impeached, fueling optimism over an economy that is suffering its deepest recession in a century.

“Commodities trade a lot on feel, and there’s probably a little bit more drama today than needed,” said John Stoltzfus, chief market strategist at Oppenheimer & Co. in New York. “The markets are all trimming lower basically ahead of the non-farm payroll numbers. Just waiting to see that.”

Stocks, bonds and the dollar have wobbled between gains and losses this week as investors count down to the August employment data due on Friday. The report, which is expected to show payrolls gains slipped back below 200,000, could influence the Federal Reserve’s actions when it reviews monetary policy in three weeks. Private payrolls data from the ADP Research Institute out Wednesday showed steady growth in the labor market. While Fed officials have said they will boost borrowing costs gradually, Chair Janet Yellen’s bullish economic assessment last week spurred bets a move could come as soon as September.

For Bloomberg Intelligence analysis of the ADP jobs data, click here.

Stocks

The S&P 500 fell 0.2 percent to 2,170.95 as of 4 p.m. in New York. After posting five straight monthly gains and reaching a record Aug. 15, the U.S. benchmark has failed to maintain its momentum amid mixed economic data and uncertainty over the timing of the Fed’s next move. Meanwhile, the CBOE Volatility Index rallied 13 percent in August.

Energy companies trimmed their August advance to 0.6 percent, while utility stocks posted their biggest monthly decline in more than a year. Phone companies had their worst month since 2014 as technology and financial shares both rose for a second month.

European stocks fell 0.4 percent as declines in commodity and energy producers outweighed the best month for banks in more than a year. Commerzbank AG and Deutsche Bank AG rallied after Manager Magazin reported the latter was considering a potential merger. Greek lenders pushed the ASE Index to the best performance among western-European markets after Piraeus Bank SA and Alpha Bank AE released earnings.

The MSCI Emerging Markets Index trimmed its third consecutive monthly gain on Wednesday as declining commodity prices weighed on benchmark gauges in raw material-dependent nations from Russia to South Africa and Brazil.

Futures on Asian equity indexes mostly signaled declines, with contracts on gauges in Sydney, Seoul and Hong Kong down at least 0.4 percent in most recent trading. Nikkei 225 Stock Average futures added 0.1 percent to 16,900 in Osaka, and gained 0.3 percent to 16,910 on the Chicago Mercantile Exchange amid a sixth day of losses for the yen.

Commodities

West Texas Intermediate oil for October delivery slid by 3.6 percent to $44.70 a barrel on the New York Mercantile Exchange, trimming its August advance to 7.5 percent, still the most since April.

Crude inventories rose by 2.28 million barrels, according to the U.S. Energy Information Administration, more than the 1.3 million-barrel increase projected by analysts surveyed by Bloomberg. Oil imports into America increased by 3.2 percent to 8.92 million last week, the highest level since September 2012, the report showed.

“This is a bearish report and you see the market reacting,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees $133 billion of assets. “OPEC can’t continue to jawbone the market with these fundamentals. They will have to do something at this upcoming meeting to keep it together.”

Oil entered a bull market Aug. 18, less than three weeks after tumbling into a bear market. Prices rebounded partly on speculation that talks among members of the Organization of Petroleum Exporting Countries in Algeria next month may result in action to stabilize the market. A deal to freeze output was proposed in February but a meeting in April ended with no final accord.

Currencies

The Bloomberg Dollar Spot Index, which tracks the currency against 10 peers, was little changed, ending August up 0.6 percent, its first monthly gain since May. The U.S. currency climbed 0.5 percent to 103.43 yen, touching its strongest level since July 29 to cap a monthly increase of 1.3 percent.

The yen was one of the worst Asian currency performers versus the dollar in August as resurgent bets on the Fed hiking rates in 2016 coincided with increased fiscal and monetary stimulus from Japan.

Friday’s payrolls data will be key for the greenback. U.S. employers are projected to have added 180,000 jobs in August, according to economists surveyed by Bloomberg. While that would be down from a 255,000 increase in July, the monthly number has exceeded expectations in the past two readings. Odds of an increase in U.S. rates next month climbed to 36 percent Wednesday, from 18 percent at the start of August, according to Fed fund futures tracked by Bloomberg. The chance of a hike by December was 60 percent.

Fed Vice Chairman Stanley Fischer said last week a rate hike is possible and added Tuesday that the central bank would base decisions at its Sept. 21 meeting on economic data, putting added focus on the U.S. August payrolls report.

The dollar’s recent strength was due to “the Fischer comments made at the end of last week, which has spurred the belief that the September meeting could be very much alive,” said Daragh Maher, New-York-based head of U.S. currency strategy at HSBC Holdings Plc. “The market took that as a validation to continue this mini-rally in the dollar.”

Brazil’s real extended what has become the world’s best currency rally on Wednesday, gaining 0.4 percent versus the dollar after senators found Rousseff guilty of bypassing Congress to finance government spending. The decision means her vice president, Michel Temer, will likely serve out the term as leader until general elections in 2018.

South Africa’s rand led declines among major peers, falling for a ninth day after the country’s biggest private fixed-income money manager said it will stop lending money to six of the largest state-run companies.

Bonds

Ten-year Treasury yields rose one basis point, or 0.01 percentage point, to 1.58 percent, according to Bloomberg Bond Trader data. Options on futures swings have declined, with a CBOE index that tracks Treasury volatility down 24 percent from a June peak reached just days after Britain voted to quit the European Union.

“Typically, liquidity declines pretty regularly in August, reflecting vacations schedules more than anything else,” said Joshua Younger, an interest-rate derivative strategist at JPMorgan in New York. “This year, we have not seen that usual pattern. This has kept volatility in check.”

--With assistance from Toshiro Hasegawa Emma O'Brien Kevin Buckland Lilian Karunungan Narayanan Somasundaram Alan Soughley David Goodman Eddie van der Walt Justin Villamil James Regan Kelly Gilblom Stephen Kirkland Rebecca Spalding Anooja Debnath Mark Shenk and Joseph Ciolli To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net, Anna-Louise Jackson in New York at ajackson36@bloomberg.net, Dani Burger in New York at dburger7@bloomberg.net. To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Rita Nazareth, Emma O'Brien

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