Equities, Canadian dollar climb on NAFTA deal; safe-haven assets hit

Brent hits 2014 high ahead of Iran sanctions

NEW YORK, Oct 1, (Agencies): A pact between the United States and Canada to rescue the trilateral NAFTA accord with Mexico drove up global stock markets and the Canadian dollar on Monday, while safe-haven assets took a hit.

The new United States-MexicoCanada Agreement (USMCA) announced on Sunday preserves a $1.2 trillion open-trade zone that was on the brink of collapse after nearly a quarter century.

The Dow Jones Industrial Average rose 190.3 points, or 0.72 percent, to 26,648.61, the S&P 500 gained 12.93 points, or 0.44 percent, to 2,926.91 and the Nasdaq Composite added 12.05 points, or 0.15 percent, to 8,058.40.

MSCI’s gauge of stocks across the globe gained 0.20 percent.

In currencies, the British pound rose against the US dollar on a Bloomberg report that the UK government was proposing a compromise on the Irish border issue in Brexit talks.

The Canadian dollar strengthened against the US dollar at a four-month high and the Mexican peso hit its highest in over seven weeks after the new trade agreement.

The pan-European FTSEurofirst 300 index rose 0.22 percent. Italian stocks, which started the day with gains, closed down 0.5 percent.

On Friday, Italian stocks, bonds and the euro had all sold off on worries over a budget proposal from Italy’s new anti-establishment government and fears that the European Union could reject the plan.

The euro on Monday was also hit by worries about a rise in Italy’s fiscal deficit, dropping below the $1.16 mark.

Also casting a shadow on markets were two surveys on Sunday that showed growth in Chinese manufacturing sputtered in September as domestic and export demand softened.

MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.18 percent lower.

Following the trade deal news, yields on US government bonds rose from Friday’s close as traders sold the safe-haven debt for riskier assets.

Gold dipped on the increased appetite for riskier assets. Spot gold dropped 0.2 percent to $1,189.79 an ounce. US gold futures fell 0.23 percent to $1,193.40 an ounce.

Benchmark Brent oil neared its highest since November 2014 on Monday, driven by concern about a supply crunch once US sanctions against Iran come into force next month.

US crude rose 1.94 percent to $74.67 per barrel and Brent was last at $84.24, up 1.83 percent on the day.

US

Wall Street got off to a strong start of the fourth quarter on Monday, with industrials and automotive stocks leading a broad rally after a last-minute deal to salvage NAFTA as a trilateral pact.

Canada and Mexico accepted more restrictive commerce in the new United States-Mexico-Canada Agreement (USMCA), which will make it harder for global automakers to build cars cheaply in Mexico and aims to bring more jobs to the United States.

Shares of Ford jumped 1.6 percent, while General Motors gained 1.3 percent. Auto-part makers also climbed and the S&P 1500 auto parts & equipment index rose 0.38 percent, marking its first increase in seven sessions.

Railroad Kansas City Southern, which gets revenue from Mexico, gained 2.5 percent. Industrial stocks jumped 1.1 percent and were on track for their best day in five weeks.

Nine of the 11 major S&P sectors were higher, with gains of more than 1 percent also seen in the materials and energy indexes. The heavyweight technology and health sectors were up between 0.8 percent and 0.9 percent.

At 11:27 a.m. EDT the Dow Jones Industrial Average was up 259.68 points, or 0.98 percent, at 26,717.99, the S&P 500 was up 19.36 points, or 0.66 percent, at 2,933.34 and the Nasdaq Composite was up 39.80 points, or 0.49 percent, at 8,086.16.

Market reaction to these developments are relatively short-lived, but the economics in the market is very strong and only concerns about the trade issues have been holding it back from moving higher, said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin.

Among sectors, only the defensive real estate and utilities were in the negative territory.

General Electric soared 9.6 percent and was set for its best day in threeand-a-half years, after replacing Chief Executive John Flannery with board member Larry Culp, who, investors bet, could re-energize the brand and transform its portfolio more quickly.

Tesla shares soared 16.1 percent as signs it had met targets for quarterly production numbers added to relief at Chief Executive Elon Musk’s settling a lawsuit with regulators that could have forced him out.

Among decliners, Intel slipped 1.2 percent after Barclays downgraded the chipmaker’s stock, saying it would face a costly battle to keep market share amid a near-term slowing of its end markets.

Advancing issues outnumbered decliners by a 1.21-to-1 ratio on the NYSE and a 1.01-to-1 ratio on the Nasdaq.

The S&P index recorded 41 new 52week highs and two new lows, while the Nasdaq recorded 80 new highs and 35 new lows.

Europe

European shares rose on Monday as a new US-Mexico-Canada trade pact lifted some of the gloom over global trade, while Italian stocks extended Friday’s slide as top EU officials weighed in on the government’s budget plans.

There was no shortage of corporate news to drive the markets either, with Ryanair taking a 12.5 percent dive after a profit warning, Fresenius boosted by a ruling in its favour, and Linde rising on a regulator’s green light for its merger with Praxair.

The eurozone’s top stock index rose 0.4 percent while Germany’s tradesensitive DAX climbed 0.8 percent.

Ryanair was the worst performer, down 7.5 percent after it cut its forecast for full-year profit and said there could be worse to come if recent coordinated strikes across Europe continue to hit traffic and bookings.

The fall in Europe’s largest low-cost carrier weighed on the wider sector which fell 0.5 percent.

Peers Easyjet, Air France-KLM and British Airways owner IAG were down 4.1 percent, 2.6 percent and 1.4 percent respectively.

While the overall market gained, Italian shares were still on tenterhooks in the fallout of the government’s decision to increase its deficit target, while Italy’s government bond yields climbed higher.

Starting the day as the strongest gainer, the FTSE MIB reversed course to finish down 0.6 percent with Italian banks extending Friday’s fall by another 3.1 percent. Eurozone banks also felt the strain, down another 1.2 percent and the worst-performing sector.

Among gainers, Fresenius shares topped the STOXX with an 8.3 percent gain after a Delaware judge ruled the German healthcare group would walk away from its $4.75 billion deal for US drugmaker Akorn Inc and rejected Akorn’s claim that the merger agreement had been breached.

Germany’s Linde jumped 6.2 percent after it received approval for its proposed $83 billion merger with Praxair from the Chinese antitrust authorities.

French supermarket group Casino inched up 0.1 percent after it said it had agreed to sell some property assets for 565 million euros ($655 million) to reduce debt levels that have worried investors.

Asia

Japanese shares powered to a new 27year high on Monday after the US and Canada clinched a long-awaited trade deal, but other Asian equity markets struggled in subdued holiday trading.

Tokyo’s leading Nikkei index closed at 24,245.76, finally crossing the record level it had flirted with on Friday, as traders shrugged off disappointing business confidence data and a weekend typhoon that shredded the country.

Also driven by a weaker yen against the dollar, this represented a gain of 0.52 percent and was the top performer in Asia, where markets in Hong Kong and China were closed.

Analysts warned, however, that traders could be looking to take some cash off the table following healthy gains in recent days.

Elsewhere in the region, South Korea’s Kospi index was off 0.1 percent and Australian equities were lower by 0.6 percent in thin trade due to a public holiday.

Key figures around 0830 GMT - Tokyo - Nikkei 225: UP 0.5 percent at 24,245.76 (close)

Hong Kong (closed) - Hang Seng at 27,788.52

Shanghai (closed) - Composite at 2,821.35

Dollar/yen: UP at 114.01 from 113.96 yen at 0630 GMT

Oil

Brent crude oil neared its highest since November 2014 on Monday, driven by concern about a supply crunch once US sanctions against Iran come into force next month.

December Brent futures were last up 45 cents at $83.18 a barrel by 1343 GMT, having touching their highest in almost four years at $83.32. US light crude futures were up 17 cents at $73.42.

Investors have indicated that they see prices rising, loading up on options that give the holder the right to buy Brent at $90 by the end of October. Open interest in call options at $90 has risen by nearly 12,000 lots in the past week to 38,000 lots, or 38 million barrels.

Higher oil prices and dollar strength, which has battered the currencies of several big crude importers, could hit demand growth next year, analysts said.

But for now the focus is US sanctions on Iran’s energy industry, which come into force on Nov 4 and are designed to cut crude exports from the third-biggest producer in the Organization of the Petroleum Exporting Countries.

Several major buyers in India and China have signalled that they will cut purchases of Iranian oil. China’s Sinopec said it had halved loadings of Iranian oil in September.

Gold

Gold edged down on Monday, holding a tight range, on expectations that a strong US economy would bring higher US interest rates and boost the dollar.

Spot gold was down 0.4 percent at $1,187.18 an ounce at 1306 GMT, staying between $1,192.22 and $1,184.21. It fell as low as $1,180.34 in the previous session. US gold futures for December delivery fell 0.3 percent to $1,192.90

Federal Reserve Chairman Jerome Powell last week said the US central bank plans gradual increases to interest rates.

This could further boost the US currency, making dollar-priced gold more expensive for holders of other currencies and potentially subduing demand.

“The main news in gold is still related to the Fed. Following Jerome Powell’s speech (last week), the market is expecting one more rate hike in December and another three next year,” said ActivTrades’ chief analyst Carlo Alberto De Casa.