(Bloomberg) — U.S. stocks followed European shares higher on Tuesday as traders reassessed risks from China’s crackdown on the real-estate sector and looked ahead to this week’s Federal Reserve meeting.
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The S&P 500 and Nasdaq 100 gained, suggesting some improvement in sentiment after concerns about fallout from China Evergrande Group’s debt woes roiled markets Monday. Dip-buyers in the last hour of trading Monday helped the S&P 500 pare some losses, though the index still posted the biggest drop since May.
“You had a lot of pent-up worries all expressed in one day and some of them were perhaps a bit overwrought — there’s still a desperate search for return by investors and still very much a buy-the-dips mentality,” said David Donabedian, chief investment officer of CIBC Private Wealth Management.
The Stoxx Europe 600 index climbed more than 1%, rebounding from the biggest slump in two months, with energy companies leading the advance and all industry sectors in the green. Royal Dutch Shell Plc rose after the company offered shareholders a payout from the sale of shale oil fields. Universal Music Group BV shares soared in their stock market debut after being spun off from Vivendi SE.
Aside from worries over Evergrande’s ability to make good on $300 billion of liabilities, investors are also positioning for the two-day Fed meeting starting Tuesday, where policy makers are expected to start laying the groundwork for paring stimulus. Treasury yields ticked lower and the dollar was steady.
“So much of this information is already known that we don’t think it will necessary set off a wave of problems,” John Bilton, head of global multi-asset strategy at JPMorgan Asset Management, said on Bloomberg TV. “I’m more concerned about knock-on sentiment at a time when investor sentiment is a bit fragile. But when we look at the fundamentals — the general growth, and direction in the wider economy — we still feel reasonably confident that the situation will right itself.”
A Hong Kong gauge of real-estate firms steadied, after developers disputed a report of pressure from the Chinese government. Evergrande slid deeper in equity and credit markets. Concerns remain about broader contagion after S&P Global Ratings said the developer is on the brink of default. China’s markets reopen on Wednesday after holidays.
China’s property-sector upheaval — part of President Xi Jinping’s broader clampdown on private industries under his “common prosperity” initiative to reduce inequality — is adding to the risks confronting investors. These include stretched equity valuations and slower economic reopening due to the delta virus strain amid price pressures stoked by commodities. Markets are also digesting an outlook of reduced central bank policy support.
Elsewhere, Bitcoin slid for a third day in volatile trading, tumbling as much as 7.6% before bouncing back to around $43,000. Oil rebounded from two days of declines, while iron ore futures took a breather following Monday’s rout, though stayed below $100 a ton on China’s steel output curbs.
In Canada, Prime Minister Justin Trudeau won a third term in a snap election but fell short of regaining a parliamentary majority. The nation’s currency was among the best performers in the Group-of-10 basket.
Here are key events to watch this week:
Bank of Japan rate decision, Wednesday
Federal Reserve rate decision, Wednesday
Bank of England rate decision, Thursday
Fed Chair Jerome Powell, Fed Governor Michelle Bowman and Vice Chairman Richard Clarida discuss pandemic recovery, Friday
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
The S&P 500 rose 0.5% as of 9:30 a.m. New York time
The Nasdaq 100 rose 0.5%
The Dow Jones Industrial Average rose 0.4%
The Stoxx Europe 600 rose 1%
The MSCI World index rose 0.5%
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.1733
The British pound was unchanged at $1.3657
The Japanese yen rose 0.2% to 109.25 per dollar
The yield on 10-year Treasuries was little changed at 1.31%
Germany’s 10-year yield declined two basis points to -0.34%
Britain’s 10-year yield declined one basis point to 0.78%
West Texas Intermediate crude rose 0.7% to $70.78 a barrel
Gold futures rose 0.5% to $1,773.30 an ounce
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Canada competition watchdog may have to rely more on litigation – top official
Competition Bureau Canada watchdog may have to rely more on litigation after its proposed veto of a takeover was overturned, and this could make life harder for companies seeking to merge, the agency head said on Wednesday.
Matthew Boswell, commissioner of competition, noted his bureau had tried this year to block western Canadian oil and gas waste firm Secure Energy Services Inc from buying rival Tervita Corp.
Secure then turned to the independent Competition Tribunal, which denied the bureau’s injunction and underscored “the high bar that needs to be met to prevent mergers … that we allege are anti-competitive,” he said.
The tribunal, he said, had acted so quickly that the bureau had not had time to present all its evidence, raising valid questions about the state of competition laws in Canada.
“This decision has significant implications for how we conduct future merger reviews, particularly in cases where there are competition concerns,” Boswell said in a speech to the Canadian Bar Association.
“This may mean that we must pursue a litigation-focused approach that is costly and less predictable for merging parties,” he added.
Secure relied on the so-called efficiencies defense, which is unique to Canada. Boswell said this procedure allowed the tribunal to allow an anti-competitive merger to proceed if the transaction was deemed to produce efficiency gains that were greater than its anti-competitive effects.
“The efficiencies defense raises significant practical
challenges for the Bureau to estimate and measure anti-competitive harm,” he said. “(We should) ask ourselves whether our competition laws are really working in the best interest of all Canadians.”
The bureau is an independent law enforcement agency set up to ensure fair competition. It investigates price fixing, bid-rigging and mergers, among other matters.
(Reporting by David Ljunggren; Editing by Cynthia Osterman)
Canadian home price growth slows to near standstill in September
Canadian home prices barely rose in September from August as a recent slowdown in housing sales weighed, data showed on Wednesday.
The Teranet-National Bank Composite House Price Index, which tracks repeat sales of single-family homes in 11 major Canadian markets, rose 0.1% in September from August, marking the fourth consecutive month in which the monthly price increase was lower than the previous month.
“The slowdown in price growth can be linked to the slowdown in housing sales reported in recent months by the Canadian Real Estate Association,” Daren King, an economist at National Bank of Canada, said in a statement.
Eight of the 11 major markets rose, led by a 1% gain for Winnipeg, while prices were stable in Montreal and fell in Vancouver as well as in Ottawa-Gatineau. It was the first time in seven months that gains were not seen in all 11 regions.
On an annual basis, the index was up 17.3%, decelerating after it notched record annual growth in August. It was paced by a 31.7% gain in Halifax and a 28.0% gain in Hamilton.
(Reporting by Fergal Smith; Editing by Steve Orlofsky)
Oil rallies as U.S. crude stocks decline in tight market
Oil prices rallied on Wednesday after U.S. Crude Inventories at the nation’s largest storage site hit their lowest level in three years and nationwide fuel stocks fell sharply, a signal of rising demand.
Brent crude futures settled at $85.82 a barrel, a gain of 0.9% or 74 cents and the highest since October 2018.
November U.S. West Texas Intermediate (WTI) crude, which expires on Wednesday, settled at $83.87, up 91 cents, or 1.1%. The more active WTI contract for December settled up 98 cents to $83.42 a barrel.
Crude prices have risen as supply has tightened, with the Organization of the Petroleum Exporting Countries maintaining a slow increase in supply rather than intervening to add more barrels to the market, and as U.S. demand has ramped up.
Globally, refiners have been boosting output thanks to high margins, one that can only be restrained by maintenance. U.S. refining capacity use dropped in the most recent week, but analysts noted that supply may continue to tighten if U.S. refiners also pick up processing again.
“Stronger demand and concerns about a drop in inventories when refiners were already running a low rate during maintenance season is making people concerned about what will happen when refiners have to ramp up production to meet what is very strong demand for gasoline and distillate,” said Phil Flynn, senior energy analyst at Price Futures Group in Chicago.
U.S. crude stocks fell by 431,000 barrels in the most recent week, the U.S. Energy Information Administration said, against expectations for an increase, and gasoline stocks plunged by more than 5 million barrels as refiners cut processing due to maintenance. [EIA/S]
U.S. stocks at the Cushing, Oklahoma delivery hub hit their lowest level since October 2018. Gasoline stocks are now at their lowest since November 2019, the EIA said, while distillate stocks fell to levels not seen since early 2020.
Oil prices have also been swept up in surging natural gas and coal prices worldwide in anticipation that power generators may switch to oil to provide electricity.
Saudi Arabia’s minister of energy said users switching from gas to oil could account for demand of 500,000-600,000 barrels per day, depending on winter weather and prices of other sources of energy.
(Additional reporting by Sonali Paul in Melbourne and Koustav Samanta in Singapore; Editing by Andrea Ricci, Kirsten Donovan and David Gregorio)
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