OIL FALLS MORE THAN 3%; ENERGY DRAGS DOWN STOCKS

NEW YORK – Oil prices dropped more than 3 percent on Wednesday following a surprise increase in gasoline inventories, and declines in energy shares weighed on U.S. stocks.

The dollar recovered from recent weakness against the euro <EUR=> and the safe-haven yen <JPY=>, while sterling was off six-month highs hit after Britain’s prime minister on Tuesday called for a snap election.

Investors also braced for the coming French election. Four days before the first round of the presidential election in France, just a few points separate the top four candidates, including two who oppose the euro – the far-right’s Marine Le Pen and the far-left’s Jean-Luc Melenchon, according to opinion polls.

In the oil market, the counter-seasonal build of 1.5 million barrels in gasoline in the latest week, along with an increase in U.S. production, pressured prices.

U.S. crude futures <CLc1> fell 3.8 percent to settle at $50.44, while Brent crude futures <LCOc1> dropped 3.6 percent to $52.93.

The oil losses hurt shares of U.S. energy companies, pushing the S&P 500 energy index <.SPNY> down 1.4 percent and causing the benchmark S&P 500 <.SPX> index to reverse earlier gains.

“Crude broke $52 on WTI, that is the strongest correlation we have right now away from the case-by-case earnings we have,” said Art Hogan, chief market strategist at Wunderlich Securities in New York.

U.S. first-quarter earnings so far have been mostly stronger than expected. On Wednesday, shares of Morgan Stanley <MS.N> rose 2 percent following the bank’s results, though International Business Machines <IBM.N> dropped 4.9 percent and pressured the Dow.

The Dow Jones Industrial Average <.DJI> was down 118.79 points, or 0.58 percent, to 20,404.49, the S&P 500 <.SPX> lost 4.02 points, or 0.17 percent, to 2,338.17 and the Nasdaq Composite <.IXIC> added 13.56 points, or 0.23 percent, to 5,863.03.

The pan-European STOXX 600 index <.STOXX>, which hit a three-week low on Tuesday, ended up 0.2 percent.

In the U.S. Treasury market, bond yields rose after a rally on Tuesday sent yields to five-month lows prompted by concerns about the French election and rising geopolitical tensions.

Benchmark 10-year notes <US10YT=RR> dropped 8/32 in price to yield 2.21 percent. The 10-year yield fell as low as 2.165 percent on Tuesday; it has tumbled from a high of 2.63 percent reached on March 14.

Questions still hung over the “reflation” trades that had lifted markets since Donald Trump became U.S. president. A run of disappointing U.S. economic data and doubts the Trump administration will progress with tax cuts have quelled expectations of faster inflation.

STERLING EASES

Sterling was down 0.19 percent at $1.2811. It hit a six-month peak against the dollar <GBP=D3> on Tuesday following British Prime Minister Theresa May’s call for an early general election on June 8, seeking to strengthen her party’s majority ahead of Brexit negotiations.

Britain’s FTSE 100 <.FTSE> index fell 0.5 percent. British stocks are vulnerable to a rising pound because more than two-thirds of FTSE 100 company earnings are derived from operations overseas.

The greenback was 0.54 percent higher against the yen and up 0.17 percent against the euro.

Gold dropped 1 percent as the dollar gained, with spot gold <XAU=> falling as low as $1,275.73 per ounce. – Reuetrs

Earlier report:

NEW YORK: The S&P 500 was flat on Wednesday (mid-afternoon) as investors waded through the latest round of earnings, while a drop in oil prices weighed on the energy sector.
IBM sank 4.7% to US$162.09 after the company reported a bigger-than-expected decline in revenue for the first time in five quarters. The stock was the biggest drag on the S&P and the price-weighted Dow.

The energy sector slumped 1.2% as oil prices fell more than 4% after US data showed a counter-seasonal build in gasoline inventories and a smaller-than-expected decline in overall crude stocks.

US crude fell below US$52 a barrel for the first time in two weeks.

“Crude broke US$52 on WTI, that is the strongest correlation we have right now away from the case-by-case earnings we have,” said Art Hogan, chief market strategist at Wunderlich Securities in New York.

“Except for a couple of household names, (earnings) have been good. The problem with our impression of the earnings season is we just talk about the bad news.”

Morgan Stanley, rose 2.9% after posting a surge in quarterly profit, taking some of the sting out of a disappointing report from Goldman Sachs on Tuesday.

Of the 57 companies in the S&P 500 that have reported earnings through Wednesday morning, 75.4% have topped expectations, according to Thomson Reuters data, above the 71% average for the past four quarters.

Overall profits of S&P 500 companies are estimated to have risen 10.8% in the quarter – the best since 2011.

The Dow Jones Industrial Average fell 80.16 points, or 0.39%, to 20,443.12, the S&P 500 lost 0.16 point, or 0.01%, to 2,342.03 and the Nasdaq Composite added 23.06 points, or 0.39%, to 5,872.53.

With Wall Street near record levels and worries over President Donald Trump’s ability to carry out his pro-growth promises, investors are hoping first-quarter earnings will be strong enough to justify pricey market valuations.

Mounting tension between North Korea and the United States, along with political uncertainty in Europe ahead of the French presidential elections, have also served to keep investors cautious.

Intuitive Surgical up 7.1% at US$813.51 after the company reported higher-than-expected first-quarter revenue and profit. The stock was on track for its best day in nearly two years.

American Express, eBay and Qualcomm are scheduled to report results after the market closes.

The US economy expanded at a modest-to-moderate pace between mid-February and the end of March, but inflation pressures remained in check despite more difficulties in attracting and retaining workers, the Federal Reserve said.

Advancing issues outnumbered declining ones on the NYSE by a 1.16-to-1 ratio; on Nasdaq, a 1.83-to-1 ratio favored advancers.

The S&P 500 posted 20 new 52-week highs and 1 new low; the Nasdaq Composite recorded 78 new highs and 29 new lows.

– Reuters