Oil Drops to Six-Year Low as Dollar Swings Before Fed

(Bloomberg) — Oil extended losses to a seventh day, heading toward a bear market, before U.S. stockpiles data, while the dollar fluctuated ahead of the Federal Reserve’s monetary policy decision. German bonds rallied and Chinese shares surged on bets the government will add stimulus.

West Texas Intermediate crude slid 2 percent to $ 42.61 a barrel by 8:22 a.m. in London, before a report projected to show record inventories. The Bloomberg Dollar Spot Index fluctuated with the euro as New Zealand’s currency slipped. The yield on 10-year German notes dropped two basis points. Standard & Poor’s 500 Index futures added 0.1 percent, while the Stoxx Europe 600 Index swung between gains and losses. The Shanghai Composite Index jumped 2.1 percent.

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“All attention is on the Fed,” said Ratch Sodsatit, Bangkok-based managing director of Asset Plus Fund Management Co., which oversees about $ 972 million of assets. “Everyone knows that U.S. rates are on the rise so the biggest focus for uncertainty is on the timing and how the economy is tolerating the stronger dollar. Crude oil is going to be at these levels for a while, which should benefit Asian economies and especially China. Low inflation will enable authorities to ease more.”

Oil’s tumble back toward a bear market could exacerbate deflationary forces working against global central bank efforts to support prices. The Fed may cut a reference to being “patient” on rate rises in its policy statement, Morgan Stanley and BNP Paribas SA say, giving it flexibility as to the timing of an interest rate increase. China’s new home prices fell in 66 cities last month as weakness in the property sector spread, while Sri Lanka’s central bank held rates.

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Funds Futures

Futures trading in the U.S. showed a 54 percent chance the Fed will raise its benchmark rate to at least 0.5 percent by September, according to data compiled by Bloomberg. That was down from 56 percent odds a week ago.

West Texas Intermediate crude has dropped 15 percent over the past seven days, and is down about 20 percent from this year’s peak, meeting some investors definition of a bear market. Figures from the industry-funded American Petroleum Institute indicated supplies rose by 10.5 million barrels last week, with analysts predicting data Wednesday will show U.S. crude supplies rose from a more-than 30-year high.

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Brent oil futures retreated 0.4 percent to $ 53.32 a barrel after rising 0.1 percent on Tuesday. The Bloomberg Commodity Index fell 0.3 percent, taking its decline this year to 7.3 percent, as gold dropped 0.12percent and copper for three-month delivery on the London Metal Exchange slid 1 percent.

Volatility Aversion

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was little changed after closing lower for a second day Tuesday. The gauge retreated 0.5 percent from a decade high on Monday.

The euro was at $ 1.0596 after rebounding from a 12-year low the past two days, while the yen traded at 121.29 per dollar. Israel’s shekel was little changed as Prime Minister Benjamin Netanyahu won the most seats in an election.

“I think most people are still pretty happy to be generally long U.S. dollars, but they are worried about how the message is going to come across” from the FOMC and Fed Chair Janet Yellen’s press conference, said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland, referring to Fed forecasts for growth, inflation, and interest rates. “People are reluctant to do anything until they see net volatility pass through the market, and they will be relatively happy to continue with the existing trend.”

Yields on 10-year Treasury notes slipped one basis point to 2.04 percent after falling for a third day in New York. European bonds were little changed. Similar German bonds paid 0.26 percent.

Japan Bonds

The rate on Japanese notes due in a decade fell 4 1/2 basis points to 0.365 percent, almost twice the record-low 0.195 percent hit in January. The $ 1.1 trillion Government Pension Investment Fund and its smaller peers almost doubled net sales of Japanese government bonds to 5.56 trillion yen ($ 46 billion) in the fourth quarter, the most in Bank of Japan figures dating back to 1998.

The S&P 500 fell as much as 0.8 percent Tuesday, after rallying the day before by the most since Feb. 3 amid data showing an unexpected drop in factory production and a retreat in confidence among U.S. homebuilders. A report Tuesday indicated housing starts plunged in February, while an increase in building permits indicated the drop may prove temporary.

The Stoxx 600 fluctuated after retreating Tuesday from its highest close since June 2007. About seven stocks fell for every four that advanced on the gauge.

Hong Kong

Thomas Cook Group Plc fell 2.4 percent after Morgan Stanley analysts cut the travel company’s stock to equalweight from overweight. Inditex SA, the world’s largest clothing retailer jumped 2 percent amid accelerating revenue growth.

Hong Kong’s Hang Seng China Enterprises Index advanced 1.2 percent and the Hang Seng Index added 0.9 percent. The Shanghai Composite Index extended a more-than six-year high amid speculation that falling property prices give China more room to extend stimulus measures as it seeks to meet its annual growth target of about 7 percent.

Nine of the 10 industry groups on the Asia-Pacific stock gauge climbed today. An MSCI measure of emerging-market shares has added 1.5 percent so far this week and is close to erasing this year’s loss.

In Tokyo, Nintendo Co. rose 21 percent, the daily limit, after announcing the end of its holdout from smartphone games, with plans to develop new titles for mobile devices made by other companies. The Topix index was 0.8 percent higher and the Nikkei 225 Stock Average added 0.6 percent to a 15-year closing high.

Ringgit, Kiwi

Malaysia’s ringgit swung to a decline of 0.4 percent versus the dollar after Fitch Ratings said the country’s credit rating is “more than 50 percent likely” to be downgraded. The dollar bought 3.7118 ringgit as Fitch cited a worsening trade balance and a state investment company that’s struggling to meets its debt obligations.

The New Zealand dollar retreated 0.4 percent to 72.76 U.S. cents after slipping 0.9 percent Tuesday after the price of whole milk powder at GlobalDairyTrade’s fortnightly auction fell for the second time in a row.

To contact the reporters on this story: Nick Gentle in Hong Kong at ngentle2@bloomberg.net; Anuchit Nguyen in Bangkok at anguyen@bloomberg.net

To contact the editors responsible for this story: Nick Gentle at ngentle2@bloomberg.net Michael Patterson

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