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While you were sleeping: Wall Street, oil drop

Tuesday 9th December 2014

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Wall Street fell from record highs, as a further slump in oil depressed shares of Chevron and Exxon Mobil, while shares of McDonald’s led the decline in the Dow after a worse than expected drop in sales. 

Brent and US crude sank to fresh five year lows, bolstering concern that the decline will continue if it remains unchecked by a drop in OPEC production. 

"Without OPEC intervention, markets risk becoming unbalanced, with peak oversupply likely in the second quarter of 2015," Morgan Stanley analyst Adam Longson told Reuters.

Ole Hansen, head of commodity strategy at Saxo Bank, agreed.

“The near term risk is for additional long liquidation,” Hansen told Bloomberg News. “The belief is spreading that we could hit US$60 or even lower before this stabilises.”

Shares of ConocoPhillips dropped, last 3.2 percent lower, after the oil and gas producer announced a 2015 capital budget of US$13.5 billion, a decrease of about 20 percent compared to 2014. The cut primarily reflects lower spending on major projects, several of which are nearing completion, as well as the deferral of spending on North American unconventional plays, the company said.

"We are setting our 2015 capital budget at a level that we believe is prudent given the current environment," Ryan Lance, chief executive officer of ConocoPhillips, said in a statement.

In afternoon trading in New York, the Dow Jones Industrial Average slid 0.32 percent, the Standard & Poor’s 500 Index fell 0.39 percent, while the Nasdaq Composite Index declined 0.55 percent.

Slides in shares of McDonald’s, Chevron and Exxon Mobil, down 3.8 percent, 3.4 percent, and 2.2 percent respectively, led the Dow lower.

McDonald’s posted a larger than expected decline in US sales in November due to strong competition and warned that fourth quarter results would be hurt by supplier troubles in China and a stronger greenback.

“It’s a squeeze that will probably continue for the foreseeable future,” Will Slabaugh, an analyst at Stephens in Little Rock, Arkansas, told Bloomberg News. “It puts more caution out there that the changes they’re trying to make aren’t dramatic enough or aren’t moving fast enough, or both.”

Shares of Merck rose, last up 0.2 percent, after the company said it would buy Cubist Pharmaceuticals for US$8.4 billion plus about US$1.1 billion in net debt.

“Cubist is a global leader in antibiotics and has built a strong portfolio of both marketed and late stage pipeline medicines,” Kenneth Frazier, Merck’s chief executive officer, said in a statement. “Combining this expertise with Merck’s strong capabilities and global reach will enable us to create a stronger position in hospital acute care while addressing critical areas of unmet medical need, such as antibiotic resistance.”

In Europe, the Stoxx 600 Index ended the session with a 0.7 percent decline from the previous close, as did Germany’s DAX Index. The UK’s FTSE 100 Index dropped 1.1 percent, while France’s CAC 40 Index fell 1 percent.

Germany’s DAX fell from a record high after a report showed the country’s industrial production increased less than expected.


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