Stock Market News (European Open) – Stoxx 600 records fresh 2-month high; Japanese equities on positive backdrop


Andreas Georgiou, XM Investment Research Desk

Japanese indices including the Nikkei 225 and the broader Topix started the week on a positive tone, both rising by 0.5% relative to Friday’s close – Friday being a day when they contracted by 0.25%. The two benchmarks have been supported by the weakening yen (having specifically in mind the rising dollar/yen pair) over the last couple of weeks, as export-reliant Japanese companies are seen as benefiting from a falling Japanese currency.

Equities in Japan are also on a positive backdrop after the announcement by Japanese Prime Minister Shinzo Abe of economic stimulus measures amounting to two trillion yen (a bit below $18 billion). The Japanese prime minister is expected to call for a snap general election on October 22 to capitalize on strong support for his Liberal Democratic Party.

Chinese property developer stocks took a dip after a new round of mainland China government restrictions to rein in what seems to be a “bubbly” housing market. The fall acted as a drag on major benchmarks, with Hong Kong’s Hang Seng losing a considerable 1.4% and the Shanghai Composite contracting by 0.35%. Australia’s S&P/ASX 200 finished the day marginally higher.

Turning to European equities, in early European trading hours the pan-European Stoxx 600 was trading 0.3% higher, hitting a fresh two-month high of 384.27. Meanwhile, the blue-chip Stoxx 50 was 0.1% higher.

In terms of closely-watched country indices in the continent, the UK’s FTSE 100 was trading 0.2% lower, the German DAX gained 0.3%, while the CAC 40 was down on the margin. IBEX 35, the Spanish blue-chip index, was down 0.7%, the most among major benchmarks in the continent. Equities in the country are being hurt by uncertainty over Catalonia’s campaign for independence.

In yesterday’s German elections, Angela Merkel did secure a fourth term in the chancellery though her party was weakened with coalition-building being in focus and creating uncertainty about the future of Europe’s largest economy. This coupled with the strong performance by the far-right Alternative for Germany (AfD), which is also viewed as anti-euro to some extent, led to declines in eurozone’s common currency relative to majors including the dollar and sterling. Euro weakness is likely to have supported the stock prices of export-driven European corporations during today’s trading.

Remaining in politics, the next round of Brexit talks will be taking place this week. UK Prime Minister Theresa May offered few specifics on the topic during last Friday’s speech. As a result, the British pound contracted and the inversely-related FTSE rallied during Friday’s late European trading hours.

ECB President Mario Draghi will be making an introductory statement at the ECON Hearing at the European Parliament in Brussels – this being the ECON committee’s third Monetary Dialogue of the year. Banking stocks will be in focus during the hearing. Financials were last the worst performing sector within the Stoxx 600 as the Stoxx 600 Banks traded 0.5% lower. Caixabank (down 2.15%) and Commerzbank (down 1.8%) were the sub-index’s worst underperformers. The latter one received a boost last week on merger speculation.

Nets A/S, the Nordic-based payment service provider was the Stoxx 600’s best performing stock, being last up by 6.4%. The company received a $5.3bn takeover bid by US private equity firm Hellman & Friedman. On the downside, the gauge’s worst performing stock was NCC AB, being last down by 7.4%. The Swedish construction company issued a profit warning.

Dow Jones, S&P 500 and Nasdaq 100 futures were all trading down by 0.1% during morning European trading hours.

Tensions between the US and North Korea remain on the background with tough comments being exchanged between the two sides during the weekend. However, markets seem to be “fatigued” by the continuing war of words, not seeing it as adding to pre-existing tensions.