Markets Tread Water Ahead of U.S. Bank Earnings -- 3rd Update
October 12 2017 - 5:14AM
Dow Jones News
By Riva Gold and Kenan Machado
-- Dollar softens after Fed minutes
-- Stocks in Japan, South Korea touch records
-- Big banks set to report earnings
Stocks stalled in Europe but rose in Asia Thursday after major
U.S. indexes climbed to fresh records.
The Stoxx Europe 600 was flat in morning trading as a fall in
government bond yields weighed down the banking sector.
Futures pointed to a small opening declines on Wall Street after
the S&P 500, Dow Jones Industrial Average and Nasdaq Composite
Index all ended at their highest on record Wednesday in an advance
that accelerated toward the end of the session when other global
bourses were closed.
Earnings reports from J.P. Morgan Chase & Co. and Citigroup
are due later Thursday followed by results from Bank of America and
Wells Fargo & Co. on Friday. Investors globally will be
watching carefully to gauge not just the health of the U.S.
financial system but the outlook from top executives for the final
quarter of the year.
"We're positive on financials," said Antoine Lesné, who runs a
research and strategy team at State Street Global Advisors. The
potential for Washington to orchestrate tax cuts and deregulate the
sector should benefit share prices, while worries about Spanish and
Italian lenders' health are for now offset by a still strong
economic environment in Europe, he said.
Asian stock markets extended gains, taking cues from records set
on Wall Street Wednesday and a robust earnings outlook for the
region.
Japan's Nikkei Stock Average gained 0.4%, building on
Wednesday's rise to a 21-year closing high. The market's strength
came despite overnight appreciation in the yen, which usually
weighs on export-related stocks.
Technology shares led gains in Japan, but energy stocks weakened
following a drop in oil prices. Brent crude oil was last down 0.5%
at $56.68 a barrel.
South Korea's Kospi added 0.7% to Wednesday's record close,
while stocks in New Zealand inched up 0.1% to an eighth straight
closing record.
Strong earnings growth has supported major stock indexes this
year, and some analysts said they expect third-quarter results to
continue to outperform expectations.
"What you are seeing in Asia is that there is some good recovery
in earnings," said Frank Benzimra, head of Asia equity strategy at
Société Générale, following stagnant earnings growth between 2011
and 2016.
In Hong Kong, the Hang Seng Index reversed early losses to trade
up 0.2% amid gains in financials and property stocks.
The Shanghai Composite Index was little changed ahead of new
policy initiatives from the Communist Party Congress, which starts
next week. Chinese market regulators have taken steps to ensure
stocks remain stable ahead of the congress and state-backed
investment funds have been intervening to limit market swings,
traders said.
The broad equity gains in Asia also come as the Federal Reserve
signaled its confidence that the U.S. economy was strong enough to
support further rate increases.
"The Fed minutes indicated a positive outlook on the U.S.
economy. That augurs well for global growth," said Alex Wijaya,
head of Southeast Asia for Axicorp Financial Services.
Minutes from the Fed's latest policy meeting, released
Wednesday, showed most officials expect the central bank to raise
short-term interest rates again this year. Still, some officials
also signaled doubts about the inflation outlook, sending the WSJ
Dollar Index down 0.1% on Thursday.
Fed-fund futures tracked by CME Group show investors currently
price an 82.9% chance of a rate rise in December, compared with an
87.8% chance priced on Tuesday.
Yields on 10-year Treasurys edged down to 2.328% Thursday from
2.346% Wednesday, signaling a rise in prices.
Investors were also parsing comments from the European Central
Bank's chief economist Peter Praet on Wednesday that the bank has
made "insufficient progress" toward its inflation target.
German debt fell to 0.448% from 0.457% Wednesday, while Italian
yields fell to 2.130% from 2.162% after the government there won
the first two ballots on a new election law that investors say
makes it more difficult for the 5 Star Movement to gain power.
Spanish 10-year yields edged down to 1.630% from 1.634%, their
lowest since the Catalan independence referendum at the start of
the month. A record volume of the Spanish bonds traded hands on
Tradeweb last week, and volumes nearly equaled the notional volume
of German bund activity in the first week of October, according to
Tradeweb.
Shen Hong
, Ian Walker and
Kevin Kingsbury
contributed to this article.
Write to Riva Gold at riva.gold@wsj.com and Kenan Machado at
kenan.machado@wsj.com
(END) Dow Jones Newswires
October 12, 2017 04:59 ET (08:59 GMT)
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