Stocks weighed down by oil price rises
Monday, March 7, 2011
LONDON (AP) — Rising oil prices weighed on stock markets Monday as the violence in Libya escalated, while a major ratings agency warned Greece may default on its debts.
Investor sentiment has in recent weeks been dented by the clashes in Libya, where rebels looked to regroup after forces loyal to longtime leader Moammar Gadhafi appeared to be clawing back ground.
The main market impact has been in the oil markets. Under normal circumstances, Libya produces about 1.6 million barrels of crude per day, but its output has been heavily affected by the violence. The country also has the biggest proven oil reserves in Africa.
Investors are also concerned that political upheaval could intensify in the Middle East, where Iran, Iraq, the United Arab Emirates, Kuwait, Bahrain, Qatar, Oman and Saudi Arabia have more than 60 percent of the world’s oil reserves.
By late morning London time, the price of a barrel of crude as traded on the New York Mercantile Exchange was up $1.77 at $106.19 while the equivalent Brent rate in London spiked $2.15 a barrel to $118.11.
The rise in oil prices hurt stocks, which are effectively a leading indicator of perceptions for economic growth, despite Friday’s upbeat U.S. jobs figures.
“Concern that unrest in Libya will spread has pushed oil prices higher still and left traders with little reason to be buying equities,” said Terry Pratt, a trader at IG Markets.
In Europe, the FTSE 100 index of leading British shares was up 0.3 percent at 6,011 while France’s CAC-40 fell an equivalent amount to 4,009. Germany’s DAX was 0.1 percent lower at 7,169.
Wall Street was poised for a fairly subdued opening — Dow futures were up a point at 12,156 while the broader Standard & Poor’s 500 futures were flat around 1,320.
Further weighing on stocks was a warning from Moody’s Investor Services that Greece may have no option but to restructure its debts in the next couple of years despite the country’s 110 billion ($154 billion) bailout last May.
The agency slashed Greece’s rating by three notches to B1 from Ba1 and warned it may cut again if the government’s commitment to austerity wanes or international creditors become less willing to support the country.
Greece’s bond yields rose on the news, with the benchmark 10-year up 0.07 of a percentage point to 12.3 percent — 9 percentage points more than Germany’s, even though they share the same currency.
The downgrade failed to hurt the euro, which continued to be buoyed by expectations that the European Central Bank will be raising borrowing costs at next month’s rate-setting meeting. Its president last week said that’s a real possibility in the wake of sharply higher inflation rates.
That expectation contrasts with the position of the U.S. Federal Reserve, which has shown little inclination to alter its super-loose monetary policy anytime soon. The difference in outlooks has helped the euro push above $1.40 for the first time since last November.
By late morning London time, the euro was 0.3 percent higher on the day at $1.4025.
Jane Foley, senior currency strategist at Rabobank International, reckons there’s every chance that the euro could rise another ten cents this year even though Europe’s government debt crisis has not gone away.
“Interest rate differentials are set to remain a solid support for the euro this year; we see the euro at $1.50 towards the end of the year,” she said.
Earlier in Asia, Japan’s benchmark Nikkei 225 stock average closed down 1.8 percent, to 10,505.02. Sentiment in Tokyo was downbeat on growing political uncertainty after Japan’s foreign minister resigned Sunday over illegal political donations, dealing a new blow to Prime Minister Naoto Kan’s embattled administration.
Hong Kong’s Hang Seng skidded 0.4 percent to 23,313.19 while South Korea’s Kospi shed 1.2 percent to 1,980.27.
Pamela Sampson in Bangkok contributed to this report.