US shares never once saw daylight on Monday as they began the fourth quarter in below last Friday’s close when market jitters over OPEC’s supply deal crept in and domestic data pointed to slower growth from Fitch Ratings.
The market bellwether S&P 500 closed down 0.3% at 2161 after trading a tight 10-point range throughout the uneventful session.
The drama that there was, came after broker Morgan Stanley questioned the likelihood of the Algiers deal by OPEC leading to meaningful oil cuts in November. After a see-saw session for the oil price, the US benchmark West Texas Intermediate settled up 0.9% at $48.66.
More drama came from Deutsche Bank (NYSE:DB). Although the German market was closed for a holiday it didn’t stop investors from savaging the company’s ADRs in New York. After a 4% drop the shares ended down 0.8% at $12.98 as investors grew more uncertain about the extent of any mollifying deal to cut the German bank’s Department of Justice fine from a crippling $14bn.
But realistically, a deal is unlikely to be announced until Tuesday Morning (European time) to allow the bank time to respond to it officially via the Frankfurt Stock Exchange. But the longer the talks carry on the more anxious investors could become.
Although PMI data rebounded in September, Fitch warned of slower growth by the US. That wasn’t the only damper for the market this session.
US light vehicle sales slowed again last month after a summer of softening sales, the most recent sign that the US industry has hit a high plateau after climbing for six years from the nadir of the Great Recession.
The top faller on the S&P 500 was an energy stock, Transocean (NYSE:RIG), down 7.5% at $9.86. But Transocean was not wallowing only over the state of the oil price.
Transocean announced today that Reliance Industries Ltd. elected to exercise its contractual option to terminate the contract for the ultra-deepwater drillship Discoverer India, effective December 2016, prior to its expiration in January 2021. In accordance with the contract, Transocean is to be compensated by Reliance and its partners for the early termination through a lump-sum payment of approximately $160mln.
The S&P Midcap 400 ended down 0.7% at 1542 and led by KBR (NYSE:KBR) down 9.9% at $13.63 after negatively revising 2016 guidance.
The S&P Smallcap 600 closed down 0.4% at 754 and was led by Taser (NASDAQ:TASR) down 15.1% to $24.29
Elsewhere, Glencore (OTCMKTS:GLNCY) ADRs ended higher after the miner and commodity trader announced plans to repurchase up to $1.25bn of bonds as part of an ongoing plan to reduce debt and leverage.
The buyback is targeting bonds that mature in 2018 and 2019 with investors being given until the end of the month to tender their notes. Glencore ended up 0.2% at $5.46.
Open
US stocks were lower on Monday, as the fourth quarter got under way with the highest oil prices in a month retreating and weighed down by Fitch Ratings’ growth forecast cut for the world’s biggest economy.
Broker Morgan Stanley cautioned the risk of disappointment over the deal is high, and that it is unclear whether the agreement isn't just aimed at settling the nerves of a jittery market for another couple of months.
Meanwhile, Fitch cut its US economic growth forecasts for this year, warning “downside risks to advanced country economic growth have risen in recent months”.
Fitch has cuts its 2016 US growth forecast to 1.4% from the 1.8% rate it predicted in July.
The report also highlighted worrying trends in other key developed markets across the globe.
The S&P 500 index was down 0.3% at 2161 and led by Air Products and Chemicals (NYSE:APD) down 6.5% at $140.63. The West Texas Intermediate was down 0.25% at $48.12. Earlier, the priced hit $48.87 – its highest since the start of July.
Air Products announced Monday that it had completed the separation of its Electronics Materials Division through the spin-off of Versum Materials, Inc.
Versum begins "regular way" trading today on the New York Stock Exchange under the symbol NYSE:VSM. Air Products common stockholders receive one share of common stock of Versum for every two shares of Air Products stock held as of the close of business on September 21.
Versum shares were down 1.3% at $22.70 Monday.
The market was also dragged lower by Deutsche Bank’s ADRs (NYSE:DB) as investors awaited a verdict on a possibly lower fine from the Department of Justice. After falling as much as 4% in early trading the bank’s stock was down 1.6% at $12.88. The stock didn’t trade at home in Germany as the Frankfurt bourse was closed for a one-day holiday.
Meanwhile, market behemoth Ford Motors (NYSE:F) shares were higher despite a new probe of its automobiles when drivers complained of doors opening while the vehicles were in motion. Ford shares were up 0.6% at $12.14.
The S&P Midcap 400 was down 0.5% at 1545 and led by KBR Inc (NYSE:KBR) down 11.8% to $13.34 after the company on Friday revised its 2016 guidance. The company said this was necessary to reflect expected increases in costs to complete engineering, procurement and construction projects.
The S&P Smallcap 600 was down 0.5% to 753 and led by led by the company which brought your police stun guns, Taser International Inc (NASDAQ:TASR) down 13% to $24.90 on no fresh news.
Pre-Open
US stocks are seen opening softer on Monday as the fourth quarter gets under way with the highest oil prices in a month but counterweighed by Fitch Ratings’ growth forecast cut for the world’s biggest economy.
The S&P 500 is indicated opening down around 0.4%.
Oil increased to its highest level since August, surpassing the $50 a barrel mark, after traders became less sceptical about the prospects of OPEC keeping its word to cut production next month.
Despite few concrete details of any potential deal and lingering concerns the oil market supply overhang may persist, the price of Brent crude – the global benchmark – increased 46 cents to $50.64 a barrel on Monday.
West Texas Intermediate, the US benchmark, was up 0.6% at $48.55, its highest levels since mid-August.
But the upside was weighed down by rating agency Fitch cutting its US economic growth forecasts for this year, warning “downside risks to advanced country economic growth have risen in recent months”.
Fitch has cuts its 2016 US growth forecast to 1.4 per cent from the 1.8 per cent pace it predicted in July.
The report also highlighted worrying trends in other key developed markets across the globe.
Meanwhile, the UK government’s Brexit plan hit sterling against the US dollar. The pound slumped 0.8% to $1.28 on Monday after Prime Minister Theresa May said at the weekend that the UK would begin the formal process of leaving the European Union by the end of March 2017.
The currency is now hovering just above the 30-year low it hit earlier this summer following the Brexit vote.
If May sticks to her timetable, Brexit should happen in 2019. Philip Hammond, the UK finance minister, already outlined that the UK economy will be in for a rocky ride over the next two years and that he is keen to conclude negotiations with the EU as fast as possible while maintaining economic strength in the bargaining process. Fiscal looseness is also tabled for the new government in order to maintain business confidence.
Tesla Motors (NASDAQ:TSLA) shares were up 4% to $212.37 pre-market after it said its deliveries jumped 70% in the third quarter - stellar growth that means the automaker is now selling twice as many cars as it was a year ago.
Employees at all 7,600 company-operated Starbucks (NASDAQ:SBUX) stores will receive a raise of at least 5% starting Monday.
The Institute for Supply Management will update its key U.S. manufacturing index at 1000 ET (1400 GMT).
Trading on Monday could remain subdued this session, following holidays in Asia and Germany, and as Jewish communities celebrate Rosh Hashanah.