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Oil slides as emerging stocks rebound with the rand

Oil extended declines as Iraqi army victories damped concern the nation’s crude supplies will be disrupted. Emerging-market stocks rebounded while South Africa’s rand and Russia’s ruble led currencies higher.

West Texas Intermediate oil fell 0.5% at 9.03am in London, retreating a second day. The MSCI Emerging Markets Index added 0.5%, the first advance in three days, while the Stoxx Europe 600 Index and Standard & Poor’s 500 Index futures were little changed. The ruble strengthened 0.3% and the rand added 0.4%. 

Yields on Australian 10-year government bonds fell five basis points, while a sale of two-year US Treasuries is projected to draw the highest yields in three years.

Iraq’s army recaptured territory along the border with Jordan and Syria from militants, while pro-Russian forces in Ukraine called a cease-fire. Germany business confidence declined for a second month in June, the Ifo institute reported, before data on US consumer confidence and housing.

Oil’s “rise that we’ve seen recently is about building in a risk premium for a potential acceleration of the Iraq situation,” said Michael McCarthy, a chief strategist at CMC Markets in Sydney who predicts investors may buy Brent contracts if prices decline to about $110 a barrel. “We’re likely to see this jagged trading continue, where the oil price spikes on news and drifts back as we await further developments.”

Iraq victories
WTI crude fell to $105.67 a barrel. The fuel closed at the highest level in nine months on June 20. Brent crude fell 0.3% to $113.74 a barrel, a third straight decline.

In Iraq, government forces took back the Al Waleed border crossing into Syria and the Traibil passageway near Jordan, state-sponsored Iraqiya TV reported. Fighters from the Islamic State in Iraq and the Levant were earlier reported to have seized the borders. Fighting in Iraq, OPEC’s second-biggest producer, hasn’t spread to the south, home to more than three-quarters of the nation’s crude output.

In Baghdad, US Secretary of State John Kerry met with Prime Minister Nouri al-Maliki, as well as ministers and party leaders. He told reporters after the talks that US support “will be intense, sustained, and if Iraq’s leaders take the necessary steps to bring the country together, it will be effective.”

Ukraine cease-fire
Russia’s Micex Index jumped 1.1% and the Ukrainian Equities Index gained 1%. Pro-Russian rebels in eastern Ukraine called a cease-fire in fighting against government forces, matching a truce announcement made earlier by President Petro Poroshenko

Two stocks climbed for each that fell on Hong Kong’s benchmark Hang Seng Index on Tuesday. The gauge dropped 1.7% on Monday after China’s benchmark money-market rate rose to a seven-week high.

The overnight repo rate jumped the most since April 29 on Tuesday to reach 3%. That compares with a record 12.85% in June last year, when concerns about a cash crunch triggered a 7.1% plunge in Hong Kong’s benchmark index. The Hang Seng Enterprises Index of mainland companies listed in the city dropped 12% during the period. The H-share index rose 0.6% today after a 1.9% slide on Monday.

India’s S&P BSE Sensex Index advanced 1.5%, the first gain in five days as lower oil prices eased balance of payments concerns for Asia’s third-largest importer of the fuel.

Aussie bonds
Australia’s 10-year government bond paid 3.64%, set for the lowest closing level since May. A decline in sales of government securities in the coming year is boosting demand for the notes. Yields on 10-year US Treasuries notes lost one basis point, or 0.01 percentage point, to 2.61% on Tuesday after gaining two basis points on Monday in New York.

“There has been strong demand for Australian bonds recently and the fact that there are no nominal bond tenders this week may be contributing to the outperformance,” said Philip Brown, a senior fixed-income strategist in Melbourne at Commonwealth Bank of Australia. – Bloomberg

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