Stocks in Europe gained, following U.S. equities and most Asian benchmarks higher as optimism over U.S. tax reform overshadowed concerns about North Korea’s latest missile launch. The British pound strengthened after the U.K. cleared a major Brexit hurdle.
The Stoxx Europe 600 Index headed for a three-week high, with most industry sectors in the green. Banks outperformed following a rally in U.S. lenders after Federal Reserve chair nominee Jerome Powell signaled he isn’t inclined to add to financial regulations. Asian stocks were mixed earlier, with gauges in Tokyo and Australia advancing while equities in Seoul dropped. U.S. benchmarks rose on Tuesday as the Senate budget committee advanced the Republican tax bill.
Elsewhere, U.K. gilts fell, the FTSE 100 stock index dropped and sterling jumped to a two-month high after Brexit negotiators agreed to an outline divorce deal. The dollar weakened and core European bonds declined with U.S. Treasuries. The euro gained as data from Germany’s regions showed inflation accelerating. Crude oil fell for a third day as U.S. inventories expanded before OPEC meets to decide on prolonging supply cuts past the end of March. Industrial metals extended a slide.
In Asia, North Korean leader Kim Jong Un said his regime completed its nuclear program after firing a missile that put the entire U.S. in range. The launch shattered a two-month period of relative quiet in its first provocation since U.S. President Donald Trump’s decision this month to label the country a state sponsor of terrorism. Trump responded that “we will take care of that situation.”
“The crux of it is that people ascribe a very low likelihood of it developing into something more sinister,” Mark Lister, head of private wealth research at Craigs Investment Partners in Wellington, said of North Korea’s missile test. “Markets are choosing to focus on the positives: that tax reform might be more likely, we’re still getting good corporate news, and all the economic data is ticking over pretty nicely.”
LGT’s Stefan Hofer discusses the North Korea missile launch, its impact on markets, and the outlook for commodities.
In the U.S., the Senate tax bill is headed for a marathon debate this week after the budget committee voted Tuesday along party lines to send the Republican plan to the floor. Republican holdouts, Bob Corker of Tennessee and Ron Johnson of Wisconsin, dropped their objections shortly before the vote. Fed chairman nominee Powell faced his Senate confirmation hearing in Washington, saying during testimony the case for a December rate hike “is coming together.”
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Here are some key events coming up this week:
- In China later this week, the official and Caixin manufacturing PMIs are expected to show mostly steady momentum.
- Japan industrial production is forecast to have rebounded in October, but CPI may show a sharp divergence between headline and core inflation, Bloomberg Intelligence said.
- The second print of third-quarter U.S. GDP on Wednesday may be revised up thanks to consumer spending and inventory accumulation, Bloomberg Intelligence said. The core PCE deflator, the Fed’s preferred gauge of inflation, is due Thursday.
- OPEC meets in Vienna on Thursday.
These are the main moves in markets:
Stocks
- The Stoxx Europe 600 Index climbed 0.5 percent as of 9:21 a.m. London time, the highest in almost three weeks.
- The U.K.’s FTSE 100 Index decreased 0.6 percent, the largest dip in almost three weeks.
- Germany’s DAX Index increased 0.7 percent.
- Futures on the SP 500 Index gained less than 0.05 percent to the highest on record.
- The Topix index gained 0.8 percent at the close in Tokyo and the Nikkei 225 Stock Average rose 0.5 percent, while Hong Kong’s Hang Seng Index was down 0.2 percent.
- Australia’s SP/ASX 200 Index rose 0.5 percent and the Kospi index dropped less than 0.1 percent.
- The MSCI Asia Pacific Index rose 0.3 percent.
Currencies
- The Bloomberg Dollar Spot Index fell 0.2 percent.
- The euro climbed 0.3 percent to $1.1871.
- The British pound gained 0.5 percent to $1.3406, the strongest in two months on the biggest gain in a week.
- The Japanese yen gained less than 0.05 percent to 111.47 per dollar.
Bonds
- The yield on 10-year Treasuries advanced one basis point to 2.34 percent.
- Germany’s 10-year yield increased two basis points to 0.34 percent, the biggest increase in almost three weeks.
- Britain’s 10-year yield increased six basis points to 1.253 percent, the highest in more than two weeks.
Commodities
- West Texas Intermediate crude dipped 0.6 percent to $57.65 a barrel, the lowest in more than a week.
- Gold gained 0.1 percent to $1,294.71 an ounce, the highest in more than six weeks.
- Copper fell 0.5 percent to $3.08 a pound, the lowest in almost two weeks.
— With assistance by Adam Haigh