Global Shares Decline Amid Oil's Weakness

By Riva Gold and Ese Erheriene Features Dow Jones Newswires

Global stocks extended losses Wednesday after a steep drop in oil prices, although Chinese shares outperformed after MSCI Inc. said it would add Chinese shares to its emerging-markets index.

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The Stoxx Europe 600 was down 0.7% in the early minutes of trading, led lower by banks, autos and insurance companies. Markets across Asia moved lower amid declines in banks and energy companies, while futures pointed to a 0.2% opening dip for the S&P 500.

The S&P 500 and Dow Jones Industrial Average posted their biggest daily losses in over a month Tuesday while government bonds firmed as oil prices dropped to their lowest level since September.

WTI crude futures were last down 0.1% at $43.45 a barrel after returning to bear-market territory Tuesday as cuts by the Organization of the Petroleum Exporting Countries were offset by increasing production elsewhere. U.S. oil production has climbed around 7% since OPEC announced plans to cut output in November, and the number of active rigs in the U.S. is at a two-year high.

Yields on 10-year U.S. Treasury notes were little changed at 2.152% Wednesday after the fall in crude sent yields down to 2.153% Tuesday, close to their low of the year. Lower energy prices tend to damp inflation expectations, boosting the value of long-term debt. Yields move inversely to prices.

The impact of falling oil on credit markets was limited and largely contained to oil-and-gas companies, according to strategists at Commerzbank.

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Earlier, stocks were lower across the Asia-Pacific region as lower oil prices hurt energy companies and financial stocks fell amid an earlier decline in global government bond yields.

The Nikkei Stock Average was down 0.5% as the yen strengthened, while South Korea's Kospi and Hong Kong's Hang Seng Index were also 0.5% lower. Australia's S&P ASX 200 logged its biggest decline of the year, falling 1.6% amid further losses for bank shares and mining and energy companies.

Mainland China markets inched higher after MSCI Inc. said it would include Chinese stocks in its emerging-markets index. The Shanghai Composite Index was up 0.3% and stocks in Shenzhen were up 0.2% as positive sentiment from the MSCI decision narrowly offset outflows from the energy sector.

Xu Yang, an analyst at Hua An Securities, said the move's near-term impact was mostly on raising market sentiment.

"As the world's second-largest stock market, A-shares don't lack money...Confidence is what this market lacks," he said.

Some investors worried that China's domestically traded A-shares were overvalued when compared with global levels, and there were also concerns about whether China's volatile market will adapt to international best practices.

"China's entry into the MSCI global indices is a historic milestone," although challenges remain, said Hao Hong, managing director and head of research at Bocom International.

In currencies, the WSJ Dollar Index was flat following two days of gains after Federal Reserve Bank of Dallas President Robert Kaplan said he would like to see more evidence of inflation before raising interest rates again.

The British pound edged down 0.2% to $1.2607, extending Tuesday's decline, while the dollar fell 0.3% against the yen.

In corporate news, shares of Provident Financial PLC fell nearly 15% after it warned that a disruption caused by a transition of the home credit business would reduce the unit's 2017 adjusted earnings by around 48%.

Kenan Machado, Stephanie Yang, Tapan Panchal and Shen Hong contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Ese Erheriene at ese.erheriene@wsj.com

(END) Dow Jones Newswires

June 21, 2017 03:53 ET (07:53 GMT)