On 03 October, 2016 – Stocks mixed to begin week
The UK announced that it would begin the formal process to leave the EU in the first quarter of 2017.
United States
Markets were lower on Monday, led by declines in utilities and real estate companies. The Dow Jones Industrials and S&P were down 0.3 percent while the Nasdaq was 0.2 percent lower. Stocks that investors consider bond proxies because they tend to pay steady dividends, such as utilities, were among the biggest decliners.
Merrimack Pharmaceuticals, which develops cancer drugs, declined after the company said it would cut almost a quarter of its work force and look for a new chief executive. Janus Capital stock surged after the firm said it would merge with another investment company, Henderson Group. Cabela’s jumped on the news that it is being bought by Bass Pro Shops. Energy shares retreated even though crude prices were higher. Major banks extended recent declines as investors worried about the stability of Deutsche Bank and Wells Fargo’s handling of sales abuses. Tesla Motors advanced after the electric carmaker said third-quarter deliveries rose by 70 percent to 24,500 cars.
The September ISM manufacturing PMI rebounded to 51.5 from 49.4 in July. The results bring hope for manufacturers that have been hurt by weak business spending and sluggish economic growth. However, construction spending tumbled 0.7 percent in August.
The pound fell after comments from Prime Minister Theresa May that the formal process by which Britain leaves the European Union would start by March next year. She signaled that she would prioritize controls on immigration over access to the European single market.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was down US$9.20 to US$1,313.30. Copper futures were down 0.8 percent to US$2.19. WTI spot crude was up 41 US cents to US$48.65. Dated Brent spot crude was up 62 US cents to US$50.81. The US dollar was up against the yen, euro, pound and Swiss franc. It was lower against the Canadian and Australian dollars. The Dollar Index was up 0.2 percent. The yield on US Treasury 30 year bond was up 2 basis points to 2.34 percent while the yield on the 10 year note was up 3 basis points to 1.62 percent.
Europe
Stocks were mixed Monday with many finishing with modest losses. The FTSE outperformed the rest of the region, adding 1.2 percent following a drop in the pound. The CAC edged 0.1 percent higher while the SMI gained 0.3 percent. The DAX was closed for a public holiday. The MIB and IBEX retreated 0.8 percent and 0.3 percent respectively.
The pound weakened after British Prime Minister Theresa May said that she will start the process for the UK to leave the European Union in the first quarter of 2017. Speaking to the delegates at her Conservative Party’s annual conference on Sunday, May said that she will invoke Article 50 of the EU’s Lisbon Treaty by the end of the first quarter of 2017. British exporters benefited from a weakening of the pound after the announcement.
In Paris, Vallourec jumped after saying that it has finalized the merger of its two main Brazilian companies into Vallourec Solucoes Tubulares do Brasil. In London, Henderson Group advanced after the investment management firm and Janus agreed to an all-stock merger of equals as part of efforts to cut costs and increase diversification. Royal Dutch Shell, BP and Tullow Oil finished higher. Novartis rose in Zurich after presenting new findings from the largest global survey to date of people with psoriasis.
A slew of September manufacturing PMIs was released. Eurozone PMI rose to 52.6 from 51.7 in August. The British manufacturing sector expanded at the fastest pace since mid-2014 on stronger growth in output and new orders, weathering uncertainty over the “Brexit” vote. The PMI jumped to 55.4 from 53.4 in August and the highest level since June 2014.
Asia Pacific
Stocks advanced as worries about European banks diminished and China’s manufacturing sector expanded slightly in September. However, the raft of manufacturing PMIs across the region was mixed. Crude oil prices fell slightly in Asia after three days of gains and the yen weakened in reaction to sluggish business sentiment data, while sterling tumbled on news that Britain would start the formal process for leaving the European Union by the end of March 2017. Markets in China, South Korea and Malaysia were closed for public holidays.
The Nikkei and Topix were up 0.9 percent and 0.6 percent respectively. Investors shrugged off the Bank of Japan’s (BoJ) closely-watched Tankan business sentiment survey, which showed that confidence among big Japanese manufacturers remained unchanged in September, compared to the previous three months. Sumco, Nomura, Asahi Group and Mitsui Mining & Smelting rallied. Kawasaki Heavy Industries tumbled after the company lowered its full-year forecast.
The Hang Seng added 1.2 percent after casino operator Macau reported better-than-expected gross gaming revenue for September. China’s official manufacturing PMI (CFLP) was unchanged in September from the previous month, while activity in the services sector picked up somewhat. Separately, the Chinese yuan joined the International Monetary Fund’s Special Drawing Rights basket after several years of efforts by Chinese policymakers to boost the currency’s international usage.
The S&P/ASX was up 0.8 percent while the All Ordinaries was 0.7 percent higher. The big four banks rose after reports emerged that Deutsche Bank is nearing a US$5.4 billion settlement with the US Justice Department over charges related to its sale of toxic mortgage bonds before the financial crisis. Origin Energy and Santos along with miners BHP Billiton and Rio Tinto advanced. Retailer Woolworths gained after completing the A$165 million sale of its Home Timber and Hardware business to Metcash.
Indian shares rallied 1.4 percent on Monday after reports that Deutsche Bank is nearing a settlement with the US Justice Department. Encouraging core sector data, gains in the rupee and robust vehicle sales figures for September unveiled by automakers also boosted investor sentiment ahead of the Reserve Bank of India monetary policy announcement on Tuesday.
Looking Forward
The Reserve Banks of Australia and India announce their respective policy decisions. UK September PMI will be posted.
Global Stock Markets
*Note — all releases are listed in local time.
Source: Fidelity
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