Stocks slip, close year mixed; oil ends ugly 2015 with slight gain

NEW YORK (Reuters): Stock and bond markets in major economies closed 2015 with a mixed performance, while oil prices and emerging markets cemented big losses during a year that provided few safe places for investors. 

While equity markets in Japan and Western Europe gained strongly amid ongoing ultra-easy monetary policy, concerns about global growth and a robust US dollar crushed petroleum prices and took down emerging markets, copper and other metals. 

Fixed-income posted a middling performance, as riskier high-yield securities fell, largely due to exposure to weakened energy credits. Short-dated US Treasury yields rose. 

The MSCI All-World Index was down 0.7%, and closed the year with a loss of 4.2%. 

For Wall Street’s most widely followed average, the Standard & Poor’s 500 Index, it was down to the last day of trading to determine whether the year would end negative or not. The benchmark index lost nearly 1% for the day, giving its price a 0.7% loss for 2015. Including dividends, it posted a positive total return for a seventh straight year.

The market’s ups and downs this year were triggered by worries about oil, global growth and the Federal Reserve. The uncertainty surrounding the US central bank’s plans dominated the last several months of trading, and some were glad to see it finally begin raising rates.

“I think that now that the Fed finally did something it will calm the intraday jitters a bit at least for the first six months, and hopefully see investors more committed to positions rather than nervous to hold anything,” said J.J. Kinahan, chief strategist at TD Ameritrade.

The Dow Jones industrial average fell 1% to 17,425.03, the S&P 500 lost 0.94% to 2,043.92 and the Nasdaq Composite fell 1.15% to 5,007.41.

Brent crude gained 3.1% to $ 37.60 on Thursday, after a 3.5% drop in the previous session. For the year, Brent slid 34% after shedding 48% the previous year, and a global supply glut shows no sign of abating. US crude lost 30% in 2015, after falling 47% in 2014. 

Some analysts like Goldman Sachs say prices as low as $ 20 per barrel might be necessary to push enough production out of business and allow the market to rebalance.

 Europe’s Eurostoxx 50 index ended the year with gains of 3.5%, after losing a bit of ground Thursday.

In Asia, Tokyo’s Nikkei index, which was closed on Thursday, finished the year up around 9%. Other Asian markets have been hit by worries about China, the world’s second largest economy, and by oil prices near 11-year lows.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up slightly on Thursday but shed nearly 12% this year. Broader emerging market stocks lost 17% in 2015.

The outperformance in European and Japanese equities has a lot to do with a strengthening dollar, which has weakened their currencies over the last few years and made their exports more competitive. 

The euro was down 0.6% on Thursday, and fell 10% against the dollar in 2015. Against a basket of major currencies in 2016, the greenback gained 9%, with a rebounding jobs market convincing the Federal Reserve to ‘lift off’ on interest rates earlier this month. 

“The Fed could come back with a second hike in March, which is not fully priced in, and the dollar should draw fresh support from that,” said Richard Franulovich, senior currency strategist at Westpac in New York.

Currency strategists predict the dollar will add another 4% next year. 

The dollar was particularly strong in 2015 against commodity currencies: It hit a more than one-year high against Russia’s rouble on Thursday, and its highest in at least 13 years against the Norwegian crown the previous day.

In debt markets, the US 10-year Treasury yield was at 2.275%; it rose modestly in 2015 from 2.17% at the beginning of the year. 

Much of the year’s rise in yields was in short-dated securities on expectations of higher rates from the US Federal Reserve. The two-year yield rose to 1.05%, compared with 0.68% at the beginning of the year. 

German bonds ended their most volatile year since 2011 with yields higher than they were at the end of 2014, showing the limitations of ultra-easy monetary policy with global disinflationary forces at work.

Ten-year yields closed at 0.63% on Wednesday, up 9 bps on the year and far from record lows of 0.05% touched in mid-April. 

High yield debt was the worst performer among fixed income in 2015. The Bank of America-Merrill Lynch US High Yield index fell more than 4.6% for the year; its US Treasury index gained about 0.65%.

Metals were broadly weaker in 2015. Copper futures lost 25% on the year, while spot gold fell 10.5%.

Gold sinks 10% for third annual loss; tough year ahead

LONDON (Reuters): Gold was steady on Thursday, ending the year down 10% for its third straight annual decline, ahead of another potentially challenging year in 2016 amid the prospect of higher US interest rates and a robust dollar.

Largely influenced by US monetary policy and dollar flows, the price of gold fell 10% in 2015 as some investors sold the precious metal to buy assets that pay a yield, such as equities.

The most-active US gold futures for February delivery settled at $ 1,060.2 per ounce on Thursday, almost flat compared with Wednesday’s close of $ 1,059.8 and close to six-year lows of $ 1,046 per ounce earlier in December.

Spot gold was down 0.2% at $ 1,061.4 an ounce at 1:57 p.m. EDT, during the last trading session of the year. Volumes were thin ahead of the New Year holiday on Friday.

“The key factor for gold remains the strong dollar and that ultimately trumps all other issues including the economy and the geopolitics,” said Ross Norman, chief executive of bullion broker Sharps Pixley.

The dollar was on track for a 9% gain this year against a basket of major currencies, making dollar-denominated gold more expensive for holders of other currencies.

Other precious metals have also been hit by dollar strength and the gold slump, and were headed for sharp annual declines.

The most-active US silver futures settled at $ 13.803 per ounce on Thursday, down 0.3% from Wednesday and ending the year down 12%. Spot prices were down 0.2% at $ 13.83 an ounce.

Industrial metals platinum and palladium were harder hit, notching up big yearly losses partly due to oversupply from mines and concerns about growth in demand.

Platinum futures settled at $ 893.2 per ounce, down 26% from a year ago, while the most-active palladium futures ended at $ 562, down 30% on the year.

Following the US Federal Reserve’s first interest rate rise in nearly a decade earlier this month and indications the central bank would resort to gradual increases in 2016, the outlook for gold does not look bullish.

“2016 will start very much more of the same, which is to say, ongoing Western paper selling, ongoing Eastern physical buying,” Sharps Pixley’s Norman said.

Other fundamentals were not supportive either. Assets of SPDR Gold Trust, the top gold-backed exchange-traded fund, were near a seven-year low while short positions on COMEX gold contracts were close to a record high.

A bearish outlook for oil could also pile pressure on gold. Gold is often seen as a hedge against oil-led inflation.

“My concern is that gold prices could remain in the $ 1,000-$ 1,200 an ounce range for a prolonged period of time as the drivers continue to be the same, including global monetary policies and euro/dollar strength,” Commerzbank Managing Director Adrien Biondi said.

Oil prices could hit low point in first quarter: BP’s Dudley

Reuters: The slump in global oil prices could hit bottom in early 2016 although prices are likely to remain low for the next couple of years, BP Chief Executive Officer Bob Dudley said.

“A low point could be in the first quarter,” Dudley said in BBC radio interview broadcast on Saturday.

Brent crude prices fell by 34% last year after shedding 48% in 2014. The plunge in global oil prices has pushed inflation close to or below zero in many countries, helping consumers but wrong-footing central banks.

Dudley said a more natural balance between supply and demand could come back in the third and fourth quarter of this year, after which stock levels could start to wear off.

“Prices are going to stay lower for longer; we have said it and I think we are in this for a couple of years. For sure, there is a boom-and-bust cycle here,” Dudley said.

Dudley also said he did not agree with Bank of England Governor Mark Carney’s use of the term ‘stranded assets’ to describe oil and gas reserves held by companies but which may prove unviable as the world moves to a low-carbon economy.

Carney used the phrase in a speech in September in which he called on companies to be more open about their ‘climate change footprint’ to avoid abrupt changes in asset prices that could destabilise markets.

“I think the term overstates it quite frankly and I have spoken to the governor about it and I have questioned that term,” Dudley said in the interview.

BP shareholders were already aware of the viability of the company’s assets which were only counted as reserves if they were economic, he said.