Oil fell, giving up some of a rally Tuesday that helped push US stocks toward a gain for 2015. Chinese shares in Hong Kong fell as the offshore yuan touched an almost five-year low, while the US dollar extended its advance.
West Texas Intermediate crude dropped 1.9 percent, holding above $37 a barrel. Standard & Poor’s 500 Index futures fluctuated after the US benchmark halted a two-day slide. The Hang Seng China Enterprises Index fell for a third day, widening a divergence with mainland equities.
The MSCI All-Country World Index was little changed, leaving it 2.9 percent lower in 2015. The S&P/ASX 200 Index capped its longest winning streak in 10 months and Australian sovereign bond yields jumped, tracking Treasuries.
“The China market is likely to remain volatile in the first half as growth will slow further and the yuan is expected to weaken,” said William Wong, head of sales trading at Shenwan Hongyuan Group Co. in Hong Kong. “H shares are vulnerable as more U.S. rate hikes will affect the economy in Hong Kong as well as market sentiment.”
China suspended cross-border currency business for some foreign banks, Reuters reported citing people familiar with the matter, as the gap between the onshore and offshore yuan exchange rates widened.
US consumer confidence and home-price data that showed the world’s biggest economy continues to strengthen helped boost the dollar and Treasury yields Tuesday, with data on pending home sales due Wednesday.
Global equities are heading for their steepest annual drop since 2011, dragged lower as the weakening of China’s economy exacerbates the biggest yearly retreat in commodity prices in seven years. The Bloomberg Commodity Index is down about 25 percent in 2015, while global bonds lost 2.7 percent, according to a Bank of America Merrill Lynch index. The S&P 500’s rally Tuesday left it 1 percent higher for the year.
“We’ll keep on being moved by the oil price,” said Chihiro Ohta, general manager of investment information at SMBC Nikko Securities Inc. in Tokyo. “We’ll have to keep being aware of this for the first three months or the first half of next year as well.”
The Hang Seng China Enterprises Index slipped 1.7 percent by 2:36 p.m. in Tokyo. The gauge of Hong Kong-traded Chinese shares is the worst-performing major measure in Asia in 2015, with its 20 percent drop standing in contrast to the 10 percent advance of the Shanghai Composite Index.
The diverging fortunes of onshore versus offshore equities are luring U.S. traders back to A shares. Investors added a net $36 million to the Deutsche X-trackers Harvest CSI 300 China A- Shares ETF in the six trading days through Monday, the first inflows since the end of October.
“One reason for the different moves is the restrictions China placed on onshore markets, while H shares do not have such restrictions,” said Bernard Aw, a strategist at IG Asia Pte in Singapore.
“China placed selling restrictions after the June sell-off, and although it also tried to go after short-sellers in Hong Kong, it was probably not very successful at that.”
The offshore yuan fell for a third day, sliding as much as 0.34 percent to 6.5970 per dollar, the weakest it’s been since January 2011. Even as China’s central bank lowered its daily reference rate for the onshore unit to levels not seen since May 2011, the gap between the two has widened to 1.6 percent. That makes it profitable to buy the yuan in Hong Kong and sell it in Shanghai.
The onshore yuan will probably drop 3.1 percent from now by the end of next year, according to analysts’ and traders’ median forecasts in a Bloomberg survey.
More firms in China are struggling to repay debt, with at least seven Chinese firms reneging on local debt obligations this year, after authorities allowed the first such default in 2014.
All 22 bond traders, analysts and others surveyed by Bloomberg forecast China’s corporate default rate will rise in 2016, while over 70 percent expect the extra yield on corporate notes to increase. The premium on five-year AA rated company securities over government notes has risen to 174.7 basis points after plunging to an eight-year low of 169.2 basis points last month.
The S&P/ASX 200 climbed 1 percent, while its New Zealand counterpart gained 0.4 percent to close a record. Japan’s Topix index added 0.3 percent, helping the MSCI Asia Pacific Index to a 0.1 percent gain.
The regional gauge has lost 4.3 percent in 2015 and is heading for its first back-to-back annual retreat since 2002. BHP Billiton Ltd. has been the biggest single drag on the gauge as the global rout in commodities saw the world’s biggest mining company drop 34 percent through Tuesday in Sydney, its biggest annual retreat since 1982.
Singapore’s Noble Group Ltd is the biggest decliner on the Asian regional benchmark gauge this year. The commodity trader slid 6.8 percent on Wednesday, extending its 2015 slump to 64 percent, after Moody’s Investors Service cut its credit rating to junk on concern about the company’s liquidity amid the rout in raw materials.
The S&P 500 rose 1.1 percent on Tuesday in New York, as technology shares surged 1.4 percent. Stocks are defying the historical trend of gains in the final month of the year, with the benchmark index down by 0.1 percent, after a series of sharp rallies and selloffs.
Futures on the FTSE 100 Index were little changed after European stocks trimmed their worst December drop since 2002. The Stoxx Europe 600 Index added 1.4 percent.
WTI futures crude slipped to $37.14 a barrel after advancing 2.9 percent Tuesday. Brent dropped 1.2 percent after settling 3.2 percent higher at $37.79.
US crude inventories probably fell for a second week, according to a Bloomberg survey before government data Wednesday. Saudi Arabia’s 2016 spending plan assumes a Brent price of $37 a barrel, according to John Sfakianakis, a Riyadh- based economist at Ashmore Group Plc and a former government adviser.
North American natural gas futures dropped after a four- day, 26 percent rally. Forecasts for frigid weather in the Midwest and the Northeast, the biggest burners of the heating fuel, allayed some fears that the springlike weather earlier this month will extend into the new year and expand a supply glut already at a seasonal record.
Industrial metals were mixed after US-traded copper futures rose the most in more than a week on Tuesday as Chinese refiners agreed to cut sales of the metal that’s trading near a six-year low. Gold for immediate delivery rose 0.2 percent.
US 10-year Treasuries were slightly higher Wednesday after yields jumped eight basis points to 2.31 percent in the previous session. Demand for government securities is waning as the Federal Reserve begins raising interest rates.
A $35 billion sale of five-year debt saw the highest yield at an auction since September 2014, while a gauge of demand fell to the lowest since July 2009. A sale of two-year securities on Monday also drew the lowest level of bidding since 2009. Demand will face another test with the Treasury scheduled to sell $29 billion of seven-year securities Wednesday.
The yield on Australian 10-year notes also rose, adding 12 basis points to 2.80 percent, even as bond risk in the Asia- Pacific region declined, paring its increase for the year.
The Markit iTraxx Asia index of credit-default swaps fell 2 basis points to 135 basis points, according to prices from Westpac Banking Corp. That leaves it up 29 basis points this year, set for the biggest annual increase since 2011.