Emerging-Market Shares Drop on China Data as Oil Plunges

By Lynn Thomasson and Grant Smith  

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Emerging-market stocks slid for an eighth day as the rout in oil accelerated and data signaled a contraction in Chinese manufacturing. The ruble erased gains after Russia raised interest rates by the most since 1998.
The MSCI Emerging Markets Index slid 0.8 percent as of 10:48 a.m. in London. European shares and Standard & Poor’s 500 Index futures advanced. A benchmark for U.S. oil slid below $55 a barrel for the first time in more than five years, while Treasuries and the yen rose. The ruble gave up an advance that reached 10.8 percent, a sign cheap oil is outweighing Russia’s attempt to defuse a currency crisis.
The global economic outlook has weakened since June, posing an increased threat to the U.K.’s financial stability, the Bank of England said, while a preliminary measure of Chinese factories fell to a seven-month low. Equity markets from India to Saudi Arabia and
Russia slumped before the U.S. Federal Reserve begins a two-day meeting today to discuss when to tighten monetary policy. The Bank of Russia raised its key rate by 6.5 percentage points to support the ruble.
“There is certainly contagion from oil to other markets,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said by e-mail. “There’s no end in sight to nose-diving oil prices, which is affecting other commodities and stock markets.”

Oil Glut

West Texas Intermediate futures dropped 2.7 percent to $54.42 a barrel. Crude oil has slumped about 45 percent this year as the Organization of Petroleum Exporting Countries sought to defend market share amid a U.S. shale boom that’s exacerbating a global glut. OPEC shouldn’t be expected to cut output while other producers continue to expand, the United Arab Emirates energy minister said.
The ruble fell for a seventh day, weakening 2.8 percent, as investors shrugged off a surprise Bank of Russia decision to take its key interest rate to 17 percent from 10.5 percent. The central bank is struggling to restore confidence in a financial system facing its largest outflows in six years amid sanctions over Ukraine and tumbling oil prices. Ten-year government bond yields jumped more than two percentage points to cross 15 percent for the first time.
Automakers led European stocks higher as data showed car sales increased in November. The Stoxx Europe 600 Index added 0.6 percent, rebounding from the biggest six-day slump in three years.

Fed Meeting

Futures on the S&P 500 climbed 0.5 percent. Fed officials meeting today and tomorrow in Washington are likely to focus on a jobless rate that’s fast approaching their goal for full employment, even as declining oil prices hold inflation below their target, economists said.
In China, the so-called flash manufacturing purchasing managers’ index from HSBC Holdings Plc and Markit Economics fell to 49.5. It’s the first time since May that the gauge has slipped below 50, the threshold between expansion and contraction.
“The China PMI falling below 50 is bad,” said Will Yun, a commodities analyst at Hyundai Futures Corp. in Seoul. “It is a signal that there is worse to come. It gives more reason for the Chinese government to use stimulus.”
Other reports showed manufacturing and services in the European Union barely expanded in December amid sluggish growth in Germany and France. The Swedish government’s growth forecast for the economy is probably too optimistic, Finance Minister Magdalena Andersson said.

Quality Assets

Government bonds advanced as investors sought the safest fixed-income assets and as falling commodity prices dimmed inflation prospects. Treasury 10-year yields declined two basis points to 2.09 percent and Germany’s reached a record-low 0.601 percent.
“It’s a flight to quality,” said Wontark Doh, head of overseas fixed-income investment in Seoul at Samsung Asset Management, which has $121.9 billion. Russia’s “tightening of monetary policy caused volatility in global markets. U.S. Treasuries are the beneficiary.”
The yen strengthened 0.8 percent to 116.83 per dollar. Gold for immediate delivery added 0.4 percent to $1,197.98 an ounce.
Stocks in the Middle East led losses in global equities, with benchmark indexes for Dubai and Abu Dhabi plunging more than 6.9 percent. Six Gulf Arab bourses including Saudi Arabia and Qatar have fallen into a bear market since Nov. 30 as Brent heads for its worst year since 2008.