Global stocks dip as Italy angst takes hold, NAFTA lift dwindles

Oil extends gains, eyes on $100 a barrel

NEW YORK, Oct 2, (Agencies): Stocks weakened around the globe and European assets sold off on Tuesday as antieuro comments by an Italian lawmaker sent Italy’s bond yields to multi-year highs and optimism over an agreement to revamp a North American trade deal receded.

The MSCI world equity index dipped 0.3 percent, paring Monday’s gains due to the new US-Mexico-Canada trade deal. The pan-European FTSEurofirst 300 index lost 0.55 percent.

Wall Street slipped at the open with bank stocks the biggest drag, but soon regained some momentum. The Dow Jones Industrial Average rose 81.53 points, or 0.31 percent, to 26,732.74, the S&P 500 lost 0.11 points, or -0.00 percent, to 2,924.48 and the Nasdaq Composite dropped 8.49 points, or 0.11 percent, to 8,028.82.

The economics spokesman for Italy’s ruling League party, Claudio Borghi, said in a radio interview that most of the country’s problems could be solved by having its own currency.

His comments drove Italian 10-year bond yields to a new 4-1/2-year high, pushing the spread between Italian and German yields to the widest for more than five years.

Shares in Italian banks, which have large sovereign bond holdings, hit a 19-month low before recovering part of their losses.

The euro fell to its weakest since Aug 21 at $1.1505, before retracing to $1.1537, down 0.34 percent on the day.

The single currency has been hurt by concerns that a significant increase in the Italian budget will deepen Italy’s debt and deficit problems, and by extension the European Union’s.

Asian stocks were lower as the boost from the agreement to save the North American free-trade deal faded. The deal lifted optimism for a resolution of a trade row between the United States and China.

China’s financial markets are closed for the week of Oct 1-5 for national holidays, but data showing weaker factory growth in China also hit Hong Kong stocks. The dollar’s strength weighed on the leading emerging markets stock index, which fell 1.3 percent, setting it on course for its biggest one-day loss for a month.

Gold rose as investors sought refuge in the safe-have after equity markets weakened. Spot gold rose 1.6 percent to $1,206.11 per ounce, reaching its highest point since Sept 21. US gold futures were up 1.5 percent at $1,209.20.

Oil prices steadied near their highest since November 2014 as markets braced for tighter supply once US sanctions against Iran kick in next month.

US crude fell 0.31 percent to $75.07 per barrel and Brent was last at $84.77,

down 0.25 percent on the day.

US

US stocks treaded water on Tuesday, pressured by worries of a eurozone breakup after anti-euro comments from an Italian lawmaker.

Italy would enjoy more favorable economic conditions outside of the eurozone, said Claudio Borghi, a eurosceptic who chairs the budget committee of the lower house of parliament. That sparked a selloff in Italian banks and pressured world stocks.

“Clearly a headwind coming into the day was European markets being soft... early trade is more driven by what’s going on in the overall markets,” said Art Hogan, chief market strategist at B. Riley FBR in New York.

“Banks and bluechip stocks in general are off a bit and that’s a little bit of a pressure point,” Hogan said.

Eight of the 11 major S&P sectors were lower, led by a 0.57 percent drop in financial stocks as US lenders such as Bank of America and Citigroup and Wells Fargo followed their Italian peers lower.

That was ahead of a speech by Federal Reserve Chairman Jerome Powell at 12:45 pm ET and Fed Vice Chair for Supervision Randal Quarles testifying before the Senate Banking Committee on banking regulation.

The defensive utilities sector was the top gainer, rising more than 1 percent.

Facebook dropped 1 percent, but the impact was blunted by gains in technology stocks, especially a continuing rally in chipmakers.

At 10:08 am EDT, the Dow Jones Industrial Average was up 15.03 points, or 0.06 percent, at 26,666.24, the S&P 500 was down 1.51 points, or 0.05 percent, at 2,923.08 and the Nasdaq Composite was down 9.82 points, or 0.12 percent, at 8,027.48. Intel gained 3.5 percent and Micron 2.5 percent, helping the Philadelphia SE semiconductor index jump 0.8 percent, its best gain in what is set to be a four-day rally.

PepsiCo fell 1.7 percent as weakerthan-expected margins overshadowed a quarterly profit that beat estimates.

US Steel Corp fell 3.8 percent after Deutsche Bank downgraded the stock on concerns around free cash flow generation and operational inconsistencies.

Declining issues outnumbered advancers for a 1.11-to-1 ratio on the NYSE and a 1.50-to-1 ratio on the Nasdaq.

The S&P index recorded 11 new 52week highs and seven new lows, while the Nasdaq recorded 18 new highs and 56 new lows.

Europe

Europe’s stock markets slid Tuesday as traders worried about Italy’s budgetary spending, while US markets rose in defiance of lingering concerns over trade wars.

The euro eased against the dollar, while oil prices fell back after a recent surge.

In Europe, “stock markets and the single currency are trading in the red... with Italian fiscal concerns continuing to weigh on the region”, said Craig Erlam, senior market analyst at Oanda.

“Investors have become increasingly concerned about the coalition government’s spending plans, with the deficit under the proposals being larger than many had expected and leaving Italy on a collision course with Brussels.”

Eurozone finance ministers on Monday warned Italy to abide by EU rules on public spending, just days after Rome announced a big spending boost in defiance of Brussels.

Key figures around 1540 GMT London - FTSE 100: DOWN 0.3 percent at 7,474.55 points (close)

Frankfurt - DAX 30: DOWN 0.4 percent at 12,287.58 (close)

Paris - CAC 40: DOWN 0.7 percent at 5,467.89 (close)

EURO STOXX 50: DOWN 0.7 percent at 3,388.99

Euro/dollar: DOWN at $1.1563 from $1.1578 at 2020 GMT

Pound/dollar: DOWN at $1.2975 from $1.3037

Asia

Hong Kong reopened after a long weekend to fall 2.4 percent, with data indicating a drop in Chinese manufacturing activity denting sentiment.

The “HSI is trading with a negative bias, playing catch up from yesterday’s holiday, in reaction to the weaker China (manufacturing) data”, said Stephen Innes, head of Asia-Pacific trade at OANDA. “It’s more than apparent Hong Kong investors are in no mood to join the revamped NAFTA festivities.”

Sydney shed 0.8 percent, Singapore fell 0.5 percent and Seoul was off 1.3 percent.

Wellington, Taipei, Jakarta and Manila were also well down.

But Tokyo edged up 0.1 percent after the Nikkei on Monday saw its highest close in 27 years with the yen at its weakest since November.

Markets in China were closed for a holiday.

High-yielding and emerging market currencies were mostly down as dealers looked for safer bets. The dollar broke 15,000 Indonesian rupiah for the first time since 1998 during the Asian financial crisis, while Mexico’s peso and the South African rand were more than one percent off against the greenback.

South Korea’s won, the Australian dollar and the Russian ruble were also sharply lower.

Key figures around 0810 GMT Tokyo - Nikkei 225: UP 0.1 percent at 24,270.62 (close)

Hong Kong - Hang Seng: DOWN 2.4 percent at 27,126.38 (close)

Shanghai - Composite: Closed for public holiday

Dollar/yen: DOWN at 113.80 from 113.96 yen

Oil

Oil prices steadied near their highest since November 2014 on Tuesday as markets braced for tighter supply once US sanctions against Iran kick in next month.

The international crude oil benchmark was flat at $84.98 per barrel by 1344 GMT after reaching a new fouryear high of $85.45 in the previous session. US West Texas Intermediate (WTI) crude futures were up 11 cents at $75.41 a barrel, having hit a four-year high of $75.91 earlier in the session.

Brent and WTI have roughly tripled compared with lows seen in January 2016, when the Organization of the Petroleum Exporting Countries and allies led by Russia started to curb oil supplies to rebalance an oversupplied market.

Sentiment was lifted by a last-gasp deal to salvage NAFTA as a trilateral pact between the United States, Mexico and Canada, rescuing a $1.2 trillion a year open-trade zone that had been about to collapse.

More fundamentally, oil markets have been pushed up by looming US sanctions against Iran’s oil industry, which at its most recent peak this year supplied nearly 3 percent of the world’s almost 100 million barrels of daily consumption.

A Reuters survey of OPEC production found Iranian output in September fell by 100,000 barrels per day, while production from the group as a whole rose by 90,000 bpd compared with August.

“Oil prices continue to climb, supported by the nearing Iran embargo and related supply concerns,” said Norbert Ruecker, head of commodity research at Swiss bank Julius Baer.

HSBC said in its fourth-quarter Global Economics outlook that “our oil analysts believe there is now a growing risk it (crude) could touch $100 per barrel”.

Washington’s sanctions start on Nov 4. Many analysts say OPEC will struggle to cover a decline in exports from Iran.

“The general impression out there currently seems to be that there is either an outright inability or at least a certain unwillingness ... to compensate for the expected continuation of declining Iranian export flows,” Vienna-based consultancy JBC Energy said.

Britain’s Barclays bank, however, said “OPEC has ample spare capacity”.

For now, soaring crude prices and weak emerging market currencies, including India’s rupee and Indonesia’s rupiah, may erode economic growth.

Gold

Gold vaulting the $1,200 per ounce mark on Tuesday, as investors sought refuge in the metal after stock markets sold off due to anti-euro comments by an Italian lawmaker.

Spot gold rose 1.6 percent to $1,206.11 per ounce at 1404 GMT, its highest since Sept 21. US gold futures were up 1.5 percent to $1,209.20.

Stocks fell worldwide, while European assets also dropped after the economics spokesman for Italy’s ruling League party, Claudio Borghi, said most of the country’s problems could be solved by having its own currency.

But while the market was experiencing respite from extensive losses, analysts were cautious about Tuesday’s rally.

“The equity market sell-off has unnerved investors and is bringing in some safe-haven bids,” said FOREX.com analyst Fawad Razaqzada.