By Riva Gold
Global stocks inched higher Tuesday after a rally in financial
shares sent the Dow Jones Industrial Average to a record close.
Futures pointed to a small opening gain on Wall Street,
following upbeat sessions in Europe and Asia.
The Stoxx Europe 600 rose 0.4% in afternoon trading, led by the
banking and utilities sectors, as Italian lenders began to recover
from a bruising start to the week.
The FTSE Italia All-Share Banks index rose nearly 2% after
falling sharply when Italian Prime Minister Matteo Renzi resigned
after a decisive referendum defeat over the weekend. Investors had
been concerned the "no" vote could lead to political instability
that could derail efforts to shore up the region's beleaguered
lenders and interfere with planned capital raising.
Italian President Sergio Mattarella accepted Mr. Renzi's
resignation Monday evening, but asked him to remain in power to
oversee the passage of the country's budget, helping reduce risks
to financial stability.
"The issue would be if the Italian system can't sort itself out
quickly enough and the restructuring of banks, which is desperately
needed, falls between the cracks," said David Vickers, a portfolio
manager at Russell Investments.
"I don't think that's realistic with banks at the epicenter of
the economy, but it [the referendum result] does create a little
more uncertainty," he said.
Shares of UniCredit were up 1.5%, even as pressure continued on
troubled lender Banca Monte dei Paschi di Siena, which fell 3.7%.
Its management is set to meet officials at the eurozone banking
regulator in Frankfurt on Tuesday to discuss the implementation of
its capital increase.
Ten-year Italian government bond yields declined as bank shares
recovered, falling to 1.940% from 2.004% Monday. Yields move
inversely to prices.
Keeping broader gains in check, however, a modest drop in
commodity prices weighed on energy and mining companies. Copper
futures fell 1% to $5,868 a ton, while Brent crude was last down
0.6% at $54.59 a barrel after it settled Monday at its highest
since July 2015.
Brent crude, the global oil benchmark, has gained over 8% this
month after members of the Organization of the Petroleum Exporting
Countries struck a long-sought agreement to reduce production.
"OPEC and Italy were seen as the last major things to worry
about this year, and now they're out of the way," said Scott Meech,
a fund manager at Union Bancaire Privée.
A longer-term stabilization in oil prices has also contributed
to a shift in inflation expectations, driving investors out of
government bonds and into more cyclical pockets of the stock market
such as the financial and industrials sectors.
The annual rate of inflation across developed economies rose for
the third straight month in October to reach its highest level in
almost two years, the Organization for Economic Cooperation and
Development said Tuesday.
"All year, the stock market has been pricing out deflationary
pressures, and the Trump victory pushed the door wide open to the
thought that fiscal stimulus is closer," Mr. Meech said.
Earlier, markets in Asia mostly closed higher as financials
rose, recovering Monday's losses after global markets reacted
calmly to the Italian referendum.
Japan's Nikkei Stock Average added 0.5%, while Hong Kong's Hang
Seng Index gained 0.8%, in the second day of a new trading link
between the city's exchange and Shenzhen. Australian shares rose
0.5%.
In currencies, the dollar inched slightly higher after two
Federal Reserve officials noted the changed political landscape in
the U.S. might lead to a more aggressive interest-rate increase
path.
The euro was down 0.2% at $1.0736 after its best day since
September, while the dollar rose 0.1% against the yen.
The British pound was up 0.2% against the dollar at $1.2744.
Negotiations over the U.K.'s exit from the European Union will need
to be wrapped up within an 18-month period, the European
Commission's chief Brexit negotiator said Tuesday.
In government bond markets, German bund yields rose slightly to
0.347%, while the 10-year U.S. Treasury note climbed to 2.394% from
2.387% on Monday.
Focus is shifting to the European Central Bank's meeting later
this week, where many expect it to announce an extension of its
massive bond-buying program.
"The ability of markets to brush off many of these [political]
events has come from knowledge that central banks stand ready to
step in, in a big way," said Michala Marcussen, global head of
economics at Société Générale.
"What [ECB President Mario] Draghi tells us Thursday will be
very important--he has to be reassuring he can deal with any risks,
even as the underlying economy says the time is right to start
considering tapering," she said.
Germany manufacturing orders posted their strongest monthly gain
in more than two years in October, data showed Tuesday, in another
sign Europe's economy is gaining ground.
Willa Plank and Giovanni Legorano contributed to this
article.
Write to Riva Gold at riva.gold@wsj.com
(END) Dow Jones Newswires
December 06, 2016 08:15 ET (13:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.