Global shares extend losses amid oil's weakness

Markets Dow Jones Newswires

(Reuters)

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

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Banks, insurance companies and car makers were the worst performers in Europe as lower oil prices dragged down inflation expectations and government bond yields. The Stoxx Europe 600 fell 0.6% midday, with shares of Provident Financial off around 16% after a profit warning, leading declines. 

Asian markets outside China closed lower amid losses in energy companies and banks, 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 as oil prices dropped to their lowest level since September, dragging some shares of oil companies. 

WTI crude oil futures were last down 0.3% at $43.35 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. 

"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. 

Still, he expects the wider U.S. stock market to continue to grind higher this year even if oil wobbles, supported by strong earnings. "Positive earnings revisions and a weaker dollar are quite a powerful springboard for the U.S.," he said. 

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Elsewhere in markets, the fall in oil prices added to recent doubts about the global inflation picture, supporting government bonds. Yields on 10-year U.S. Treasury notes fell to 2.149% Wednesday from 2.153% Tuesday, close to their low of the year, while German bund yields fell to 0.245% from 0.265%. 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 amid losses in energy companies and banks. 

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%. 

Mainland China markets inched higher, however, after MSCI Inc. said it would include China A-shares in its emerging-markets index, meaning funds that track it will automatically allocate money into China. 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. 

"We think today's MSCI move will help to accelerate China's financial integration into the rest of the world," Aidan Yao, economist at AXA Investment Managers, said in a note. 

"For global investors, while the inclusion will not trigger an immediate and wholesale change in their asset allocation, it will put Chinese equities on the map." 

In currencies, the WSJ Dollar Index edged down 0.1% after two days of gains. The British pound swung between small gains and losses as investors waited for the U.K. government to set out its legislative program and was last flat, while the dollar fell 0.3% against the yen. 

--Stephanie Yang and Alejandro Lazo contributed to this article. 

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