US open: Stocks drop as oil declines and dollar takes a hit

US stocks fell in early trade as oil prices slipped back and the dollar tumbled against the yen, although there was some better-than-expected news on the jobs front.

At 1540 BST, the Dow Jones Industrial Average was down 0.9%, the S&P 500 was 0.8% lower and the Nasdaq was off 1%.

At the same time, the rally in oil prices - sparked by Wednesday’s better-than-expected data from the Energy Information Administration – lost steam as an official from the state-run South Oil Company in Iraq said exports from the country’s southern ports rose to an average of 3.494m barrels per day in April from 3.286m in March.

West Texas Intermediate was down 1.2% to $37.29 a barrel and Brent crude was 1.7% weaker at $39.16.

In currency markets, the dollar tumbled to a 17-month low against the yen.

“After storming higher yesterday thanks to a surge in crude oil, US equities began today’s session sharply lower,” said David Morrison, senior market strategist at SpreadCo.

“Traders were spooked by the strength of the yen which saw the USD/JPY fall to its lowest level since October 2014. This was when Japan’s policymakers extended their monetary stimulus programme in an effort to drive the currency lower to boost exports and inflation.

“Investors dumped stocks on the US open on fears that the BOJ has run out of ammunition when it comes to effectively loosening monetary policy. Another complication is that Japan takes over the chairmanship of G7 next month where all members have said they won’t intervene to weaken their currencies. Japan’s excessive debt-to-GDP ratio makes it particularly vulnerable to deflationary pressures which are increased by yen strength.”

Meanwhile, investors continued to digest the minutes from the latest Federal Reserve meeting that came out late on Wednesday.

The minutes revealed policymakers discussed the possibility of a rate hike in April but the overall consensus was that the risks from a global economic slowdown meant a cautious approach was needed.

Amid the downbeat tone, a better-than-expected release on unemployment claims failed to provide any cheer.

Data from the Labor Department showed the number of Americans filing for unemployment benefits fell a little more than expected last week.

US initial jobless claims fell by 9,000 to 267,000 from the previous week’s unrevised level, versus economists’ expectations for a drop to 270,000.

This marked 57 consecutive weeks of initial claims below 300,000 - the longest streak since 1973.

In corporate news, Sprint Corp fell after announcing late on Wednesday that it has reached a deal with several bankrupt entities to sell and then lease back network assets which will then be used as collateral to raise $2.2bn.

Drugstore chain Rite Aid edged lower despite posting better-than-expected fourth quarter profit.

Shares in Pacific Sunwear tumbled after the retailer filed for bankruptcy protection.

Costco Wholesale Corp slid after releasing its March sales figures.

On the upside, Valeant Pharmaceuticals rallied after lenders gave the embattled drug company an extension on the filing of two key reports, removing the immediate threat of default.

Home goods retailer Bed Bath & Beyond pushed higher after its fourth quarter earnings and revenue surpassed analysts’ forecasts.

McDonald’s nudged a touch higher after saying its long-term chairman Andrew McKenna was stepping down.

Elsewhere, Fed Chair Janet Yellen will hold conversations with former chairmen Ben Bernanke and Alan Greenspan at the International House in New York City later in the day.

“It’s not clear exactly how much they will discuss current monetary policy or the possible path of it going forward but should they touch on this then the markets cold work themselves up into a bit of a frenzy,” said Craig Erlam, senior market analyst at Oanda.