Global Stocks Rally, Led by Italian Banks, Nestlé
June 26 2017 - 8:56AM
Dow Jones News
By Christopher Whittall and Kenan Machado
Global stocks moved higher Monday, led by gains in European
banking shares.
U.S. futures pointed to a 0.3% opening gain for the S&P 500.
The Stoxx Europe 600 rose 0.8% after Asian markets broadly
advanced.
Investors scooped up European banking stocks after Italian
authorities said Sunday they were prepared to spend as much as
EUR17 billion ($19.03 billion) as part of the shutdown of two
regional banks.
Italian banks have been a concern for years, weighed down by
about EUR200 billion in bad loans, low profitability and
insufficient capital. Their troubles have cast a shadow over the
wider European banking system, which accounts for a large chunk of
regional equity benchmarks.
"It is a very significant step," said Isabelle Mateos y Lago,
chief multiasset strategist at BlackRock.
"If finally the issue of [bad loans in] the Italian banking
system and overcapacity in some of the regional banks is being
addressed, it is a very positive signal," she added.
The Stoxx Europe 600 Banks subindex gained 1.5%, while the FTSE
Italia All-Share Banks rose 3.5%. Shares in Intesa Sanpaolo, which
is set to buy the best assets of two troubled Italian lenders for a
token fee, rose 4.6%. Shares in Italy's largest lender, UniCredit,
gained 3.1%.
Elsewhere in Europe, food and beverage shares logged strong
gains following news that billionaire activist investor Daniel
Loeb's Third Point hedge fund has taken a $3.5 billion stake in
Nestlé. Shares in Nestlé added 4%.
A stabilization in oil prices added to the positive tone in
markets on Monday. U.S. oil prices entered a bear market last week
after falling more than 20% from their February high. That slump
came amid a persistent glut in crude prices despite moves to limit
production from the Organization of the Petroleum Exporting
Countries.
Brent crude oil, the international benchmark, pared earlier
gains but still traded up 0.1% at $45.59 a barrel recently. The
Stoxx Europe 600 Oil and Gas subindex climbed 0.4%.
In early 2016, a sharp decline in oil prices pushed down major
stock indexes as investors worried about the knock-on effects of
rising defaults in the energy sector. The energy market is also
crucial for the earnings recovery in the U.S., where the sector is
expected to account for nearly half of the S&P 500's earnings
growth in the second quarter, according to FactSet.
A "protracted shift" of oil prices to $40 a barrel or below
during the second half of the year would be needed for central bank
reserve managers and sovereign-wealth funds of oil exporting
countries to become "significant sellers" of equities and bonds,
strategists at J.P. Morgan Chase & Co. wrote in a recent note
to clients. Such investors were an important driver of equity and
corporate bond selling in 2015 and early 2016, the strategists
said.
Gold prices slid as investors shunned havens and moved into
riskier assets. Prices were recently down 1.2% at $1,242 an ounce.
The Swiss franc and the Japanese yen, which tend to decline when
riskier assets rally, were both lower against the dollar and the
euro.
Elsewhere in currency markets, the British pound rose slightly
after the ruling Conservative Party reached an agreement with
Northern Ireland's Democratic Unionist Party to support Prime
Minister Theresa May's minority government. The pound was recently
up 0.2% against the dollar at $1.2737.
The WSJ Dollar Index, which measures the dollar against a basket
of 16 other currencies, was up 0.1% recently.
The yield on the 10-year Treasury note was little changed at
2.143%, according to Tradeweb.
Investors are looking ahead to a raft of inflation data out of
Europe and the U.S. this week. Signs that inflation has softened
have pushed down bond yields in recent weeks.
"We think we're in a bit of a goldilocks environment," said Ms.
Mateos y Lago, with strong economic growth and lukewarm inflation.
That means central banks shouldn't rush to raise interest rates,
she said.
"Frankly, that is a great environment to be in risk assets
globally," she said.
In Asia, the Shanghai Composite Index rose 0.9%, with Chinese
stocks continuing to perform strongly following MSCI's decision to
add them to its indexes. Gains there also helped boost Hong Kong
equities on Monday. The Hang Seng Index rose 0.8%.
Meanwhile, Taiwan's tech-heavy Taiex index gained 1.3% to hit
fresh 27-year highs.
In Japan, the Nikkei Stock Average rose 0.1%, with financial
stocks weighing on the broader index. Signs that interest rates
will remain low continue to weigh on Japanese financials, said
Hisao Matsuura, chief strategist for equities at Nomura Japan.
Write to Christopher Whittall at christopher.whittall@wsj.com
and Kenan Machado at kenan.machado@wsj.com
(END) Dow Jones Newswires
June 26, 2017 08:41 ET (12:41 GMT)
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