European stocks rise despite Spain concerns
Stocks in the U.S. and Asia moved higher Tuesday even as lingering concerns about Spain and a stronger euro weighed down European bourses.
Futures pointed to a 0.2% opening advance for the S&P 500 following gains in Japan and Hong Kong as global investors bet the coming earnings season would deliver solid results.
Companies in the S&P 500 are expected to show an earnings growth rate of 2.8% in the third-quarter despite losses caused by recent hurricanes. Companies with a higher share of global revenues are likely to particularly benefit from a strengthening world economy and weaker dollar, according to FactSet.
The Stoxx Europe 600 was off just under 0.1% however as declines in shares of Spanish and Italian companies offset a modest advance in U.K. stocks.
Catalan President Carles Puigdemont is expected to address Catalonia’s regional parliament later Tuesday and could make a declaration of independence, keeping some investors cautious.
“This whole Catalonia thing just caught investors by surprise,” said William Hamlyn, portfolio manager at Manulife Asset Management, “but it’s really hard to believe that Catalonia is going to break away given all the difficulties that entails,” he added.
Investors have also been keeping an eye on Italy as the next potential source of political risk for the eurozone, as parliamentary elections must be conducted no later than May 2018. Italy’s FTSE MIB index fell 0.5% Tuesday and has fallen nearly as much as Spain’s IBEX 35 index since the Oct. 1 Catalan referendum.
“Italy is probably the one economy people are most worried about,” Mr. Hamlyn added.
Still, market moves were moderate, with yields on Spanish and Italian debt trading well below last week’s peaks and narrowing their gap over safe German debt on Tuesday.
“Spain generally has been doing pretty well, so I’d be surprised if the Catalonia situation was enough to tip over other positive things going on in European economy,” said Mark Heppenstall, chief investment officer at Penn Mutual Asset Management.
In a sign that the region’s economic recovery has continued to broaden, German exports surged in August due to strong demand from the eurozone, data showed Tuesday.
Export-heavy stocks were also under pressure Tuesday as the euro firmed 0.4% to $1.1785. Germany’s DAX index, which generates roughly half its revenues outside of Europe according to FactSet, fell 0.1% from a record high.
Corporate news drove swings in individual stocks globally as earnings season got under way. Shares of LVMH Moët Hennessy Louis Vuitton rose 2.2% after the French luxury conglomerate and industry bellwether said its third-quarter revenue rose 14%.
In South Korea, Index heavyweight Samsung Electronics drove gains as traders rushed to buy the stock ahead of the company’s third-quarter earnings report due on Friday. The Kospi was up 1.6% and near its record high after local markets were shut for all of last week and Monday.
Continued geopolitical tensions hurt travel-related stocks, with Lotte Tour Development and Korean Air Lines both off roughly 2%. On Monday, U.S. Defense Secretary Jim Mattis told a gathering of Army officers and troops they need to be ready in case negotiations with North Korea about its nuclear weapons program fail.
“There is still this nagging issue of North Korea,” said Joanne Goh, a regional equity strategist for DBS in Singapore.
In Japan, the Nikkei Stock Average gained 0.6%, led by auto makers, following Monday’s market holiday. Trading sentiment in Japan was lifted by strong polls for the incumbent Liberal Democratic Party. Expectations are for Prime Minister Shinzo Abe to win a “solid” majority in the lower-house elections on Oct. 22, according to analysts at Capital Economics.
But Japanese energy stocks were sold off as they caught up with the end-of-week slide in oil prices. Brent crude oil was last up 1% at $56.36 a barrel.
Hong Kong’s Hang Seng Index was up 0.6% as Chinese property developers stabilized after Monday’s slide. Investors in the region expect the Chinese government to help prop up local markets ahead of the crucial Communist Party Congress next week, said Vishnu Varathan, a senior economist at Mizuho Bank.
As U.S. bond markets reopened after a holiday, yields on 10-year Treasurys edged down to 2.353% from 2.370% Friday. German 10-year yields rose slightly to 0.446% from 0.442% on Monday. Yields move inversely to prices.
Sabine Lautenschläger, a member of the European Central Bank’s Executive Board, said Monday the bank should start cutting its bond purchases at the beginning of next year.
In currency markets, the WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, was down 0.3%.
The Turkish lira strengthened 0.4% against the dollar after tumbling Monday after the U.S. and Turkey stopped issuing nonimmigrant visas to each others’ citizens.
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