Oil rose, gold reached a three-week high and the yen strengthened as conflict in Iraqstoked concern that crude supplies will be disrupted and boosted the appeal of haven assets. European stocks and U.S. equity futures dropped.
Brent oil rose 0.3 percent to $112.80 a barrel at 10:01 a.m. in London, while gold advanced 0.3 percent. Japan’s currency strengthened against all 16 of its major peers and Treasuries gained. The Stoxx Europe 600 Index fell 0.2 percent and Standard & Poor’s 500 Indexfutures declined 0.2 percent. U.K. natural gas added the most in three months and Russia’s Micex index dropped the most in three weeks as OAO Gazprom said it would only supply Ukraine with gas paid for in advance.
Iraq’s army killed more than 279 rebels yesterday as the prospect of civil war in OPEC’s second-largest producer intensified with Sunni Muslim insurgents controlling territory north of Baghdad. In Ukraine, tensions escalated at the weekend with 49 servicemen killed when pro-Russia fighters shot down an aircraft. The U.S. releases industrial production data today before the Federal Reserve reviews policy later this week.
“Pictures of atrocities in Iraq, the breakdown of talks between Ukraine and Gazprom,” Kit Juckes, global strategist at Societe Generale SA in London, said in an e-mailed note. “It all makes for a risk-averse start to the week. Oil prices are higher, at levels not seen since last autumn, and if the trend goes on, it will have an impact on risk appetite.”
Persian Gulf
Iraq’s government is seeking to reassert control over territory taken by a breakaway al-Qaeda group, whose advance puts in doubt the long-term unity of the Persian Gulf country. Sectarian strife is pushing Iraq closer to civil war, three years after the U.S. withdrew its forces. West Texas Intermediate crude for July delivery rose to $107.37 a barrel.
The question “is whether increased volatility in oil prices will spill over into higher volatility in other financial markets,” Sharon Zollner, a senior economist in Auckland at ANZ Bank New Zealand Ltd., wrote in a note to clients. “If oil prices were to skyrocket, boosting inflation, it could also make it harder for central banks to keep global monetary policy at stimulatory extremes for a good while yet.”
Brent’s 20-day historical volatility rebounded from a record low June 12, rising to as high as 13 percent, according to exchange data compiled by Bloomberg. Brent may average $116 a barrel in the fourth quarter, according to Macquarie Group Ltd., the most accurate forecaster in the first three months of 2014, Bloomberg Rankings data shows.
Russian Gas
Russia, which supplies about 15 percent of Europe’s natural gas through Ukrainian pipelines, may shut off supplies to Ukraine today amid escalating tensions over separatist movements in the former Soviet republic’s east. Both nations have been trading accusations over the June 14 attack on the military plane and an assault on Russia’s embassy in Kiev.
U.K. front-month gas climbed as much as 8.8 percent, the biggest increase since March 3, the first trading day after Russia took control of Crimea, on the ICE Futures Europe exchange and was recently up 4.2 percent.
Gold, viewed by some investors as a haven, rose to $1,281.24 an ounce today after advancing 1.9 percent last week. It touched $1,284.96, the highest intraday price since May 27. Silver climbed 0.2 percent to $19.7393 an ounce after jumping 3.5 percent last week, the biggest weekly advance since February. Platinum gained 0.2 percent to $1,436.13 per ounce.
The yen rose 0.2 percent to 137.86 per euro after appreciating to 137.71, the strongest level since Feb. 6. Japan’s currency gained 0.1 percent to 101.93 per dollar. The euro weakened 0.1 percent to $1.3525 after declining 0.8 percent last week.
Treasuries Rise
Treasuries climbed as investors sought haven assets before the Federal Reserve meets this week. Benchmark 10-year yields fell two basis points, or 0.02 percentage point, to 2.58 percent, based on Bloomberg Bond Trader prices.
The pound advanced to more than $1.70 for the first time since 2009 as Bank of England Deputy Governor Charlie Bean said he’d welcome an increase in interest rates as a sign that the economy was returning to normal.
Sterling was little changed at $1.6979 after reaching $1.7011, the highest since Aug. 6, 2009. It climbed 1 percent last week, the most since the period ended Feb. 14.
Bank of England Governor Mark Carney’s warning last week that benchmark interest rates might start to rise earlier than anticipated is hurting demand for sterling corporate bonds. The difference in yields between investment-grade notes in pounds and euro securities is the widest in more than four years at 2.24 percentage points, according to Bank of America Merrill Lynch index data.
Corporate Debt
The cost of insuring against losses on corporate debt rose, with the Market iTraxx Europe index of credit-default swaps on 125 investment-grade companies increasing one basis point to 60.5 basis points, the highest level since June 5.
The Stoxx 600 slipped last week, ending eight straight weeks of gains. It reached its highest level since January 2008 on June 10, sending equity valuations to levels not seen in a decade just as investors turn away from record low bond yields.
The two-year rally that has restored more than $4 trillion to European share prices has pushed the Stoxx 600 to 17.5 times annual earnings, the highest since 2002, data compiled by Bloomberg show. Companies trading at above-average multiples such as Kingfisher Plc, the London-based home-products maker, and steelmaker Vallourec SA in Boulogne-Billancourt, France, tumbled in the past month after reporting disappointing earnings.
Russian Investor
Smith & Nephew Plc slid 2.4 percent after Medtronic Inc. agreed to buy Covidien Plc. The U.S. medical-device maker considered making a bid for Smith & Nephew at the beginning of this month, people familiar with the matter said.
RWE AG lost 1.1 percent after Germany’s largest power producer said the sale of its Dea unit to a Russian investor faces an investigation in Germany.
Actelion Ltd. rallied 14 percent as its experimental treatment for a rare lung disease met the main goal of a late-stage study.
The volume of shares listed on the index changing hands today was 22 percent lower than the 30-day average, data compiled by Bloomberg show.
S&P 500 futures expiring in September dropped 0.2 percent today after the index fell 0.7 percent last week. Lower estimates for global growth and escalating violence across Iraq halted a three-week rally that sent the index to an all-time high.
Emerging Markets
The MSCI All-Country World Index slid 0.1 percent after declining 0.3 percent last week, halting four consecutive weeks of gains. The MSCI AC Asia Pacific Index (MXAP) dropped 0.3 percent today for a third day of losses. It climbed for five straight weeks.
The MSCI Emerging Markets Index fell 0.4 percent 1,045.83, declining for the fourth day in its longest losing streak since Jan. 21. Russia’s Micex Index dropped 1.3 percent, the most this month, as Gazprom slumped 1.5 percent.
The Borsa Istanbul 100 Index fell 1.2 percent, heading for its lowest level since May 28. The lira depreciated 1 percent, poised for its weakest level since April 23.
In the U.S., a Federal Reserve report at 9:15 a.m. Washington time will show that industrial production advanced 0.5 percent in May, according to economists surveyed by Bloomberg. It declined 0.6 percent in April.
A separate release from the New York Fed at 8:30 a.m. will show that a measure of manufacturing in the New York region fell to 15 in June, from 19.01 in May, according to economists in a Bloomberg News survey.
Copper for delivery in three months rose 0.6 percent to $6,694 per metric ton on the London Metal Exchange. Nickel advanced 1.4 percent to $18,330 a ton.
Wheat rose 0.6 percent to $6.0025 per bushel in Chicago. Corn and soybeans were little changed.
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