Global stock mkts climb on US economic outlook; dollar gains

Oil falls as OPEC output rises in Sept; gold slips

NEW YORK, Oct 2, (Agencies): World stock markets climbed on Monday, lifted by optimism over the outlook for corporate earnings and US President Donald Trump’s tax reform plan, while the US dollar gained after a manufacturing index rose to its highest level since 2004.

Spanish borrowing costs rose and stocks fell as a violent police crackdown on an independence vote in Catalonia rattled investors, but major European bourses gained on travel stocks and a mining sector helped by higher metals prices.

US manufacturing surged amid strong gains in new orders and raw material prices, while rebounding construction spending in August bolstered the economic outlook even as Hurricanes Harvey and Irma are expected to dent third-quarter growth.

The Institute for Supply Management (ISM) said its index of US factory activity rose to a reading of 60.8 last month, the highest reading since May 2004, from 58.8 in August.

The dollar was last up 0.64 percent against the euro at $1.1736 and up 0.20 percent against the yen at 112.70 .

The euro was also hurt after the voting in Catalonia fueled anxiety over political risk in the euro zone. Many analysts said the uncertainty could slow Spain’s economic growth though they expect the crisis to be resolved with an offer of more autonomy.

“It is clear that risks to government stability are increasing,” said Federico Santi, an analyst at Eurasia Group in London, referring to reports of nearly 900 injured in the clashes with police.

The pan-regional FTSEurofirst 300 index of leading European companies rose 0.41 percent to a preliminary close of 1,530.98, and MSCI’s gauge of stock performance in 46 countries gained 0.04 percent.

On Wall Street, the three key stock indexes ground higher to record intraday highs.

The Dow Jones Industrial Average rose 70.6 points, or 0.32 percent, to 22,475.69. The S&P 500 gained 4.55 points, or 0.18 percent, to 2,523.91 and the Nasdaq Composite added 14.73 points, or 0.23 percent, to 6,510.69.

“Investors are trying to get in front of earnings that are expected to be pretty good and there’s still some optimism over corporate tax relief,” Rick Meckler, president of hedge fund LibertyView Capital Management LLC in Jersey City, New Jersey.

Third-quarter earnings are expected to increase 6.2 percent from a year earlier, according to Thomson Reuters research. Excluding energy, earnings growth is estimated at 4.3 percent.

Oil fell more than $1 a barrel to below $56 as a rise in US drilling and higher output from the Organization of the Petroleum Exporting Countries halted a rally that helped prices to register their biggest third-quarter gain in 13 years.

US energy companies added oil rigs for the first week in seven and Iraq announced its exports rose slightly in September while OPEC overall boosted output, a Reuters survey showed.

US crude fell $1.42 to $50.25 per barrel and Brent was last at $55.70, down $1.09 on the day.

Benchmark 10-year US Treasury notes fell 4/32 in price to yield 2.339 percent.

US gold futures fell 0.62 percent to $1,276.80 an ounce, while copper rose 0.27 percent to $6,498.50 a tonne.

US

All the three major US stock indexes were hovering near record highs on Monday morning, in a strong start to the fourth quarter, boosted by technology and healthcare stocks and after data pointed to underlying strength in the economy.

However, shares of casino operators were lower, while those of gunmakers were higher after a gunman killed at least 50 people in Las Vegas on Sunday in the largest mass shooting in US history.

Investors have pinned hopes on President Donald Trump’s tax reform plan, which envisages lowering corporate tax to 20 percent.

“There is a sense of optimism that something will get done on corporate tax reform now that healthcare has been finally put to bed, if you will,” said Nadia Lovell, US Equity Strategist, J.P. Morgan Private Bank.

The Institute for Supply Management (ISM) said on Monday its index of national factory activity surged to a reading of 60.8 last month, the highest reading since May 2004, from 58.8 in August.

Dollar rose against a basket of currencies after the data and Fed Chair Janet Yellen’s recent speech that suggested the odds of an interest rate hike in December remain high.

Trump has promised a decision this month on who is likely to be the new chief of the US central bank and has met with former Federal Reserve Governor Kevin Warsh and three others.

Nine of the 11 major S&P indexes were positive on Monday, led by healthcare and technology sectors.

Boosting the broader index was Johnson & Johnson, Gilead Sciences among healthcare stocks and Microsoft and Intel among tech.

But the gains were tempered by a drop in energy.

The energy sector was down 0.75 pct, led by Exxon Mobil and Chevron, after a rise in US drilling and higher OPEC output put brakes on a rally that helped prices register their biggest third-quarter gain in 13 years.

At 11:18 am EDT the Dow Jones industrial average was up 61.83 points, or 0.28 percent, at 22,466.92, the S&P 500 was up 5.01 points, or 0.20 percent, at 2,524.37 and the Nasdaq Composite was up 21.50 points, or 0.33 percent, at 6,517.46.

Europe

Spanish stocks sank on Monday after violence surrounding Catalonia’s independence referendum fuelled political worries and left Madrid’s bourse missing out as European shares hit a three-months high and Wall Street fresh new records.

The pan-European STOXX 600 began the fourth quarter with a 0.5 percent gain, boosted by a weaker euro. But Spain’s IBEX fell 1.5 percent after Catalans defied a police crackdown to vote for independence in a referendum the Spanish government said was unconstitutional.

Spain’s IBEX has been a strong performer among European benchmarks, up 10 percent in the year to date, but lost some of its shine leading into the referendum.

Shares in Catalonia-headquartered Banco Sabadell and Caixabank were the worst-performing within the Spanish index, down 4.4 and 4.5 percent each.

Euro zone lenders felt some of their Spanish counterparts’ pain, and lost 0.7 percent.

“There is clearly a Catalan effect” for financial shares, said Stephane Barbier de la Serre, a strategist at Makor Capital Markets.

In the longer run, the Catalonian crisis is unlikely to derail the bullish trend of the sector, he said, explaining tighter monetary policies would gradually push rates higher, benefiting lenders.

Not all banks fell. Italy’s UBI Banca jumped 4.6 percent to the top of the FTSE MIB after Societe Generale upgraded the stock to a “buy”, saying higher Italian GDP forecasts indicated growing lending demand and better non-performing loan management.

Outside financial stocks, European markets seemed immune to the events in Spain. EasyJet, Ryanair and Lufthansa were among top gainers, up between 3.5 and 5.2 percent after Monarch Airlines went bust.

Travel and leisure stocks gained 0.9 percent as airlines rose on the prospect of carving up Monarch’s assets, in the sector’s latest failure after Alitalia and Air Berlin succumbed earlier this year.

But most other European markets rose as the weaker euro is positive for exporters in the region, analysts said, with the Frankfurt DAX index reaching an all-time closing high, analysts said.

Asia

Asian markets rose Monday following records on Wall Street last week on hopes that President Donald Trump’s tax reforms would breathe new life into the US economy.

Both the S&P 500 and Nasdaq ended at records, with investors buoyed by expectations of strong earnings ahead of the third-quarter corporate reporting season, which begins in about two weeks.

In Tokyo, the benchmark Nikkei 225 index ended the day with only modest gains of 0.2 percent, even though business confidence hit its highest level in a decade according to the Bank of Japan’s Tankan survey.

The strong Tankan figures, which beat estimates by a good margin, “should encourage investors to pick up ... individual shares that are expected to report good results” in their half-year earnings reports due this month, said Yoshihiro Ito, chief strategist at Okasan Online Securities.

But worries over a national election later this month were weighing on the market, analysts said, with an upstart party led by the popular Governor of Tokyo, Yuriko Koike, seen making inroads into Prime Minister Shinzo Abe’s majority.

Shares in Nissan fell by more than five percent in early trade before ending the day down 2.69 percent, after news emerged that thousands of its vehicles had been inspected by uncertified employees.

The automaker said late Friday that it would temporarily halt some vehicle registrations in Japan.

The dollar fetched 112.95 yen in Asian trading, up from 112.52 yen in New York on Friday.

Hong Kong and Shanghai were closed for a public holiday, while Singapore added one percent and Sydney gained 0.8 percent.

Oil

Oil fell more than $1 a barrel to below $56 on Monday as a rise in US drilling and higher OPEC output put the brakes on a rally that helped prices to register their biggest third-quarter gain in 13 years.

Iraq announced its exports rose slightly in September while OPEC overall boosted output, a Reuters survey showed.

In its report on Friday, General Electric Co’s Baker Hughes energy services firm said drillers added six oil rigs in the week to Sept. 29, bringing the total count up to 750.

Gold

Gold fell to its lowest since mid-August on Monday as rising US Treasury yields pushed the dollar higher while concern over violence during Catalonia’s independence vote at the weekend weighed on the euro.

US 10-year Treasury yields hit their highest since mid-July on expectations that the Federal Reserve will increase US interest rates for a third time this year, upbeat US data and talk of a possibly more hawkish successor to Fed Chair Janet Yellen.

Rising yields increases the attractiveness of bonds compared to gold while strength in the dollar makes assets priced in the US currency more expensive for buyers holding other currencies.