Lower oil prices undermine investor risk appetite

US stocks closed lower on Monday as industrials and materials sectors fell following declining oil prices. The dollar weakened with dovish comments of Fed Chair Yellen last week about the need to be cautious with raising interest rates still weighing on prospects for rate hikes. The live dollar index data indicate the ICE US Dollar Index, a measure of the dollar’s value against a basket of six major currencies, slipped 0.1% to 94.542. Even though Janet Yellen stressed the need to wait and see whether recent inflation gains will endure before hiking rates, other Fed officials have been more supportive of rate hikes, indicating a lack of unified stance on monetary tightening among policy makers. On Monday Boston Fed President Eric Rosengren, who has typically been dovish in his previous comments and is a voting member of the Fed policy committee this year, said rate hikes may come sooner than the market is expecting. The Dow Jones Industrial Average closed down 0.3% at 17737.00, led by declines in Goldman Sachs, Caterpillar and 3M Company. The S&P 500 fell 0.3% and settled at 2066.13, dragged lower by industrials and materials sectors which led the decliners, both down about 1%. Freeport-McMoRan shares slumped 4.8% indicating heightened risk aversion on the back of falling oil prices and Treasury yields. Investors will be focusing on corporate earnings reports with earnings season starting next week. Earnings are expected to fall, which may weigh on stock market indexes. Yesterday Commerce Department reported US factory orders slumped 1.7% in February, in line with expectations. Today at 14:30 CET February Trade Balance will be released in US. The tentative outlook is negative. At 15:45 CET final March Services PMI will be published. The tentative outlook is neutral. At 16:00 CET March ISM Non-Manufacturing Composite Index, Investor’s Business Daily April Index and Job Openings and Labor Turnover survey results will be released. The tentative outlook is positive.
European stocks ended higher on Monday erasing earlier losses. The euro was little changed, slipping 0.03% to $1.1390 with traders expecting no change in Federal Reserve policy outlook after the release of US nonfarm payrolls on Friday. The Stoxx Europe 600 closed up 0.4%, helped by the report euro-zone’s unemployment rate fell to 10.3% in February from 10.4% in January, the lowest level since August 2011. Germany's DAX 30 rose 0.3% settling at 9822.08. France's CAC 40 gained 0.5%, despite a breakdown in closely watched merger talks between French telecom majors Orange and Bouygues late Friday. French telecom stocks sold off, Bouygues shares sank 13.5% and Orange tumbled 6.2%. UK’s FTSE 100 added 0.3% with Construction PMI showing UK construction sector activity continued to expand. Today at 10:30 CET March Services PMI will be published in UK. The tentative outlook is positive. At 11:00 CET February Retail Sales will be released in euro-zone. The tentative outlook is negative.
Nikkei fell 2.4% to six week low today as yen strengthened on haven demand despite a pledge by Bank of Japan Governor Kuroda to undertake additional monetary easing without hesitation if necessary. Exporter stocks slipped, Toyota Motor and Bridgestone shares lost 3.3%, Nissan Motor fell 3.1%. Chinese stocks rose to three month high with Shanghai Composite Index up 1.4% after reports on Monday government has planned debt-to-equity swaps for banks designed to "resolve" 1 trillion yuan ($154.4 billion) in potential bad banking debt in three years or less.
Oil futures prices are extending losses today with doubts resurfacing about the possibility of an agreement between major crude producers to freeze output at January levels ahead of their April 17 meeting in Qatar. June Brent crude fell 2.5% to $37.69 a barrel on Monday after Saudi Arabia said on Friday it would only freeze production if Iran agreed to freeze as well. Adding to concerns about prolonged supply glut Russian Energy Ministry data indicated Russia’s oil production rose 2.1% year-over-year in March, hitting the highest in 30 years.