European shares drop with banks, crude oil drops on Iran exports

LONDON – European shares fell for a third day, led by losses in banks as investors shrugged off gains for energy companies and makers of household goods. The yen weakened as China stepped up efforts to curb foreign speculation against its currency, and crude oil fell after touching a 12-year low.

The Stoxx Europe 600 Index fell to its lowest level in more than a year, with banks declining on concern the quality of their assets may harm profits. Polish bonds fell after the country received its first-ever sovereign downgrade. The offshore yuan jumped and shares in Shanghai advanced. U.S. markets are closed for a holiday Monday. Portugal’s PSI 20 Index dropped 3.6 percent, while Italy’s FTSE MIB Index and Greece’s ASE Index both fell more than 2 percent. Bond yields in Portugal soared and the stock market sank amid turmoil in the banking system.

Oil’s decline and slowing growth in China sparked volatile trading at the start of 2016 that left the Stoxx Europe 600 Index more than 20 percent below its April record at Friday’s close, meeting the common definition of a bear market. Iran is aiming to raise shipments by 500,000 barrels of oil a day amid the removal of sanctions, adding to a global glut that’s dragged prices 21 percent lower this year. Figures Monday indicated improvement in China’s property sector, ahead of a swathe of data Tuesday that will include an update on fourth-quarter gross domestic product. “Volatility indexes are on levels which are far away from calm waters,” said Guillermo Hernandez Sampere, head of trading at MPPM EK in Eppstein, Germany. “We are still in risk-off mode, so don’t expect a ‘V-shaped’ correction to the upside. As a value investor, we see this as a buying opportunity for the mid or long term.”

The Stoxx Europe 600 was 0.3 percent lower as of 2:53 p.m. London time. Brent crude futures had fallen 1.1 percent at $28.60 a barrel, after falling as much as 4.4 percent. The Bank of America Merrill Lynch Market Risk Index, which tracks volatility in different assets worldwide, was at the highest since Oct. 1 on Friday.

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Equities

Twelve of the Stoxx 600’s 19 industry groups fell, led by a drop in banks, while energy companies rose 0.3 percent. Total SA gained 1.7 percent and BP PLC added 0.9 percent. Banca Monte dei Paschi di Siena SpA declined 14 percent and UniCredit SpA dropped 4.7 percent.

Ericsson AB led technology shares higher, adding 3.1 percent after Nordea Bank AB upgraded its recommendation to buy from hold.

Contracts on the Standard & Poor’s 500 Index slid after the index fell Friday to its lowest closing level since August. The Bloomberg GCC 200 Index of Gulf climbed 0.3 percent despite the decline in oil.

Commodities

Brent oil earlier extended its decline below $28 as international sanctions on Iran were lifted, paving the way for increased exports from the OPEC producer. Futures fell intraday to the lowest since November 2003. Prices pared losses after the Organization of Petroleum Exporting Countries, which supplies about 40 percent of the world’s oil, predicted production outside its members would drop this year by 660,000 barrels a day. That deepened the decline from its previous estimate by 270,000 barrels a day.

Nickel led most base metals higher in London on optimism that China will see an increase in demand and its economy will avoid a hard landing. The metal used to produce stainless steel rose as much as 2.7 percent to $8,625 a metric ton.

Emerging markets

The MSCI Emerging Markets Index fell for a third day, slipping 0.7 percent and the Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong sank 1.2 percent to a four-year low.

The Shanghai Composite Index rose 0.4 percent after a home-price recovery spread to more cities and speculation grew equities were oversold after the benchmark gauge entered a bear market last week.

Poland’s benchmark equity index dropped 2.4 percent. The country’s bonds fell, sending the yield on 10-year zloty notes higher by 19 basis points to 3.14 percent. S&P cut Poland to BBB+, the third-lowest investment level, on Friday, and lowered its outlook to negative from positive, warning policies of the new government were imperiling the country’s institutions.

Taiwan’s biotechnology shares led the Taiex higher by 0.6 percent on speculation president-elect Tsai Ing-wen will increase funding in the industry to bolster economic growth. Tsai, who won this weekend’s presidential election in a surprise landslide for the Democratic Progressive Party, said last month that she would boost Taiwan’s economy by focusing on five industries – biotechnology, green technology, smart machinery, Internet of Things and national defense.

Currencies

The yen dropped from close to a four-month high after China’s central bank helped calm investors’ nerves by strengthening the yuan fixing by the most in almost a month.

As havens fell, higher-yielding currencies rebounded, with the Australian dollar outperforming all of its major peers and the Canadian dollar climbing for the first time this year.

“Markets have settled down a bit” following the yuan fixing, said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland. They “still feel quite nervous, but prepared to wait to see what tomorrow’s data brings.”

Japan’s currency, the best performer among major counterparts this year, fell 0.3 percent at 117.33 per dollar, while the euro traded 0.2 percent lower at $1.0895 and the Swiss franc slid 0.3 percent.

The Canadian dollar added 0.1 percent after earlier sliding to an almost 13-year low. Russia’s ruble depreciated 2.1 percent to 79.253 against the dollar.

The offshore yuan strengthened 0.4 percent, building on its biggest weekly gain since October. The cost of borrowing yuan on a weekly basis in Hong Kong rose, while overnight lending rates fell. The People’s Bank of China said it will impose reserve-requirement ratios on yuan deposited onshore by overseas financial institutions from Jan. 25, without saying what level would be used.

Bonds

U.K. government bonds declined for the first time in five days, with the yield on U.K. 10-year gilts adding three basis points to 1.69 percent, after falling 11 basis points last week.

Portuguese bonds extended declines on Monday pushing 10-year yields to their highest since Nov. 13 amid turmoil in the nation’s banking system. Portugal Prime Minister Antonio Costa said Friday he was concerned by the central bank’s treatment of Novo Banco SA bondholders after some were forced to take losses on their investments. Portugal’s PSI 20 Index dropped 3.4 percent.

The cost of insuring investment-grade corporate debt rose for a ninth day, the longest run since May 2012. The Markit iTraxx Europe Index of credit-default swaps on highly rated companies climbed two basis points to 96 basis points. A gauge of default swaps on non-investment grade companies increased five basis point to 385 basis points, the highest since October 2014.

Credit-default swaps on Casino Guichard-Perrachon SA surged after S&P said it may cut the French supermarket operator to junk. The company is under attack from short-seller Carson Block’s Muddy Waters LLC, which contends it is using financial engineering to mask a sharply deteriorating core business.

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