Global Shares Extend Losses Amid Oil's Weakness -- Update

By Riva Gold and Ese Erheriene Features Dow Jones Newswires

Global stocks extended losses Wednesday following a drop in oil prices and government bond yields, although Chinese shares got a modest boost after MSCI Inc. said it would add the country its emerging-markets index.

Continue Reading Below

The Stoxx Europe 600 fell 0.8% in morning trading, weighed down by banks and insurance companies, which tend to suffer when bond yields fall. Shares of Provident Financial were off 16% after a profit warning, leading declines in the region.

Futures pointed to a 0.3% opening dip for the S&P 500, after the S&P 500 and Dow Jones Industrial Average posted their biggest daily losses in over a month Tuesday as oil prices dropped to their lowest level since September.

WTI crude oil futures were last down 0.2% at $43.43 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.

"There's so much shale oil in the U.S. and so much excess supply," said Patrick Spencer, vice chairman of equities at Robert W. Baird & Co.

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.

Continue Reading Below

The fall in oil prices cast doubts on the global inflation picture, supporting government bonds. Yields on 10-year U.S. Treasury notes fell to 2.147% Wednesday from 2.153% Tuesday, close to their low of the year. Yields move inversely to prices.

"Oil, which can be a big inflation contributor, is down around 20% year to date," said Nancy Curtin, chief investment officer at Close Brothers Asset Management. "Despite improvements in the growth picture, there seems to be very little inflation," she said.

Federal Reserve Bank of Dallas President Robert Kaplan also said Tuesday he would like to see more evidence of inflation before raising interest rates again.

"I'd like to see now a confirmation in the data that the recent weakness in March, and to some extent April and May, was transitory," he said.

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

Earlier, stocks were lower across the Asia-Pacific region as lower oil prices hurt energy companies and financial stocks were dragged down by lower government bond yields.

The Nikkei Stock Average was down 0.5% as the yen strengthened, while Hong Kong's Hang Seng Index fell 0.6%. 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, which could attract further inflows to the country from global investors who passively track the index. The Shanghai Composite Index was up 0.5% and stocks in Shenzhen were up 0.4% 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 remain worried that China's domestically traded A-shares are overvalued when compared with global levels, and there are 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 after two days of gains. The British pound edged down 0.2% to $1.2607, extending Tuesday's declines, while the dollar fell 0.3% against the yen.

Kenan Machado

,

Stephanie Yang

,

Alejandro Lazo

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 06:04 ET (10:04 GMT)