While you were sleeping: Oil slick spreads

Wall Street swung from gains to losses as investors took positions as US Federal Reserve policy makers prepared to start a two-day meeting on Tuesday, and as oil prices continued their free-fall.

Oil tumbled further after United Arab Emirates said oil exporters would not cut output even if prices slide as low as US$40 a barrel. West Texas Intermediate for January delivery dropped 2.4 percent to US$56.45 a barrel on the New York Mercantile Exchange. Brent for January settlement slid 0.8 percent to US$61.35 a barrel on the London-based ICE Futures Europe exchange.

Equities followed suit. In afternoon trading in New York, the Dow Jones Industrial Average fell 0.2 percent, the Standard & Poor’s 500 Index declined 0.3 percent, while the Nasdaq Composite Index dropped 0.5 percent. The S&P 500 fell as low as 1,982.26 after earlier rising as high as 2,018.69.

Slides in shares of General Electric and those of American Express, down 1.3 percent and 1.1 percent respectively, led the Dow lower.

“The continued free fall in crude is the main thing here,” Uri Landesman, president at Platinum Partners in New York, told Reuters, adding the S&P 500 could test 1,750. “The irony of this is you could argue the cause is going to be good news for the economy,” citing lower gasoline prices as a boost to consumer spending.

In Europe, the Stoxx 600 Index ended the session with a 2.2 percent slide from the previous close. The UK’s FTSE 100 Index dropped 1.9 percent, France’s CAC 40 Index shed 2.5 percent, while Germany’s DAX Index slumped 2.7 percent.

Eyes are on the Federal Open Market Committee’s final two-day meeting of 2014, starting Tuesday. A key focus is whether policy makers will stick to their commitment to hold rates near zero for a “considerable time”. At the end of the meeting on Wednesday, there will be a statement, fresh forecasts and a press conference by Fed Chair Janet Yellen.

The drop in oil prices “lends support to our expectation of monetary-policy divergence next year, making Fed tightening in the first half more likely, while pushing other central bankers to be relatively more dovish,” Credit Suisse Group economists led by Neville Hill and James Sweeney said in a December 12 report to clients, Bloomberg News reported.

The data on the US economy remain sound. A Fed report showed industrial production climbed 1.3 percent in November, following a 0.1 percent increase in October.

“There is little evidence here that weaker global growth or a stronger dollar has hurt US manufacturing,” John Ryding, chief economist at RDQ Economics in New York, told Reuters.

Shares of PetSmart rallied 4.5 percent after it agreed to be bought by a group led by BC Partners for US$8.7 billion, in the largest leveraged buyout of a US company of the year.