Europe's Stocks Rise With Bonds on Earnings, Ratings, Politics

EghtesadOnline: European markets started the week in a buoyant mood, as equities rose on earnings, bonds jumped on a brightening credit outlook and economic data exceeded analyst estimates.

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24 October 2016

According to Bloomberg, shares climbed around the world, with 17 of the 19 industry groups in the Stoxx Europe 600 Index rising as Royal Philips NV surged on improved profits. Government bonds advanced after Portugal was retained at investment grade by DBRS Ltd. and Spain moved closer to resolving a political impasse. Emerging-market currencies strengthened, led by the rand, while in Asia, the Shanghai Composite Index reached its highest level since January and the yuan sank toward an all-time low in the offshore market. Base metals jumped.

With more than 100 companies in the Stoxx 600 scheduled to report results this week, Europe’s markets received an additional boost after a Purchasing Managers’ Index for manufacturing and services showed euro-area economic momentum accelerated to the fastest pace this year. Earnings will play a key role for stocks this week, with three of the world’s four biggest companies by market value, including Apple Inc., due to announce results in America, while China has all four of its largest listed banks reporting.

“Earnings is the key metric for investors,” said Matthew Sherwood, head of investment strategy in Sydney at Perpetual Ltd., which manages about $21 billion. “Meanwhile, there are a number of important macro events which are holding the market back, including the U.S. election early next month.”

Stocks

The Stoxx Europe 600 Index climbed 0.5 percent as of 9:56 a.m. London time. Royal Philips NV jumped by the most since January after the Dutch company announced a 14 percent increase in third-quarter profit.

Spain’s benchmark IBEX 35 Index advanced the most among western-European markets after the Socialist Party leadership opted to stand aside and let acting Prime Minister Mariano Rajoy take office for a second term, signaling the end of the nation’s 10-month political stalemate.

Syngenta AG tumbled 6.2 percent, the most in 14 months, after the European Union said China National Chemical Corp. didn’t submit concessions to EU regulators by an Oct. 21 deadline for a review of the $43 billion takeover of the Swiss seed and pesticide maker.

The MSCI Asia Pacific Index rose 0.4 percent, reversing an earlier loss. The Shanghai Composite Index rallied to a nine-month high amid speculation China will boost fiscal spending and follow through with pledges to overhaul the ownership structure of state-owned firms. Hong Kong’s Hang Seng Index gained 1 percent from Thursday’s close as trading resumed following a typhoon on Friday.

S&P 500 Index futures rallied 0.5 percent before American companies including Visa Inc. and T-Mobile US Inc. announce quarterly earnings on Monday. About 80 percent of the 118 members of the S&P 500 that have reported so far beat estimates, though analysts still forecast a contraction in profits. AT&T Inc. said over the weekend it agreed to buy Time Warner Inc. for $85.4 billion.

Currencies

The Bloomberg Dollar Spot Index fluctuated ahead of Monday speeches by Federal Reserve Governor Jerome Powell and regional Fed presidents for New York, St. Louis and Chicago. The chance of a rate hike this year increased by two percentage points last week to 68 percent in the futures market. The euro halted a four-day run of losses.

The yuan fell 0.1 percent to a six-year low in Shanghai and was 0.1 percent shy of its all-time low in the offshore market, which started in 2010. A net $44.7 billion worth of yuan payments left China in September, the most in data going back to 2010, the currency regulator reported Friday. Goldman Sachs Group Inc. estimated on Friday that China’s outflows totaled about $500 billion in the first nine months of this year.

“Market sentiment will be relatively negative in the near term as the offshore yuan tests record lows," said Zhou Hao, an economist at Commerzbank AG in Singapore. "In the long term, China will still see net funds exit."

Commodities

Crude oil was little changed at $50.89 a barrel in New York, after advancing 0.8 percent on Friday. Iraq’s oil minister said Sunday that the nation should be exempted from production cuts proposed by the Organization of Petroleum Exporting Countries because it’s embroiled in a war with Islamic militants. The country is the group’s second-largest producer.

Industrial metals advanced across the board following a seven-day slide in the London Metal Exchange’s LMEX Index. Zinc led gains with a 1.3 percent increase.

Gold was little changed after advancing 1.2 percent last week. The net-long position in bullion futures and options fell to the lowest in more than seven months during the week ended Oct. 18, according to Commodity Futures Trading Commission data released Friday.

“Market participants will be watching for any data that could drive the FOMC to raise rates,” Jason Schenker, president of Prestige Economics LLC, said in a note received on Monday, referring to the policy-setting Federal Open Market Committee by its initials. “Near-term Fed-hawkish, dollar-bullish factors threaten to send gold prices lower.”

Bonds

Portugal’s 10-year bond yield declined 10 basis points to 3.10 percent, touching the lowest level in more than a month. The nation’s credit rating was retained at investment grade by DBRS, securing eligibility of the country’s debt for the European Central Bank’s bond purchase program. Spain’s 10-year yield fell four basis points to 1.07 percent.

Treasuries due in a decade were little changed and yielded 1.73 percent, after the rate sank six basis points last week. U.S. government debt handed investors a 0.6 percent loss in the month through Sunday, still the best performance in dollar terms among 26 major markets. U.K. notes ranked last with an 8.7 percent loss.