U.S. Stocks, Dollar Set to Rise After Long Weekend

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U.S. stocks were set to re-open after a holiday with modest gains as global markets were broadly steady on Tuesday.

The dollar extended a five-day rally and futures pointed to a 0.1% opening rise for the S&P 500 ahead of the Institute for Supply Management’s August manufacturing index. Data showed U.S. manufacturing lost momentum in July but continued to expand at a healthy rate despite new tariffs on steel and aluminum.

The figures, alongside Friday’s monthly jobs report, are expected to be closely watched as market participants assess the likelihood of another interest rate increase in September and the course of rates next year.

The WSJ Dollar Index, which tracks the dollar against a basket of 16 others, was up 0.4% as markets continued to price in a steady pace of increases.

Developments on trade this week were also expected to remain in focus with North American Free Trade Agreement talks slated to reopen Wednesday. President Trump’s weekend threats to leave Canada out of the new Nafta kept stocks in Europe and Asia subdued on Monday.

On Tuesday, the Stoxx Europe 600 swung between small gains and losses in morning trading and was last down 0.2%. Europe’s basic resources sector came under pressure as a stronger dollar dragged down metals prices.

Shares of WPP, the world’s largest advertising company, were down 7.6% after the company released earnings for the second quarter.

Among gainers, Italian lenders rallied following a recovery in Italian bonds, sending the benchmark Italian FTSE MIB index up 0.4% after falling nearly 5% over the past month.

Yields on 10-year Italian government bonds fell to 3.09% from around 3.23% at the end of last week, after worries over the country’s fall budget sent Italian government bond yields to their highest since 2014 in August. Yields move inversely to prices.

The relief in Italian markets came after Fitch Ratings Friday affirmed its triple-B rating on the country’s debt despite warning about the country’s outlook, while media reports suggested Italian ministers were dialing down spending plans, assuaging some investors’ worries that the fall budget could put Italian debt on an unsustainable course.

Despite the small recovery this week, Italian stocks and bonds remain sharply lower for the year as many investors remain concerned about the prospects for the Italian economy and Italian relations with Brussels.

“It’s hard to have a very strong view [on Europe], because it will really depend what happens with the Italian situation,” said Jeremy Gatto, a multiasset investment manager at Unigestion, who has recently put on hedges against losses in European stocks and the euro in case Italian politics create further market unease.

Earlier, stocks in Asia were mostly steady Tuesday, with Japan’s Nikkei down 0.1%, South Korea’s Kospi up 0.4% and Hong Kong’s Hang Seng up 0.9%. Shares of China Unicom were up 5.9% amid reports about a merger with fellow state-controlled wireless firm China Telecom.

The Australian dollar was little changed after the Reserve Bank of Australia kept interest rates unchanged at a record low as expected.

Write to Riva Gold at riva.gold@wsj.com

2018-09-04 09:34:16

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