Energy stocks drove gains in Europe as oil prices held near four-year highs. U.S. futures and the Canadian dollar pushed higher at the start of the final quarter after the U.S. and Canada reached a last-minute deal late Sunday night to revise the North American Free Trade Agreement. The Canadian dollar rose 0.5% against the U.S. dollar to its highest level since May, while the Mexican peso climbed 0.9%. The WSJ Dollar Index, which measures the buck against a basket of 16 others, rose 0.1%.
Futures markets pointed to a 0.5% opening gain for the S&P 500 after the blue-chip index climbed over 7% in the third quarter, notching its best performance in almost five years, to rest just below record highs. The pending agreement will allow Canada to join an accord reached in late August between the U.S. and Mexico.
The Stoxx Europe 600 was up 0.2% in early trade, led by gains in energy stocks as oil prices held near the highest level in around four years. Markets in the Asia-Pacific region were mixed. Japan’s Nikkei Stock Average increased, while Australian and Korean indexes declined. Chinese markets were closed for a public holiday.
Investors have remained focused on trade tensions in recent weeks as the U.S. and China have ramped up tariffs against each others’ economies. Still, many have drawn comfort from the U.S. reaching agreements with other large trading partners in recent months including the European Union, Mexico and now Canada.
“The market is now done with the issue of Nafta,” Commerzbank strategists wrote in a note to clients Monday. A robust domestic economy and strong company earnings have also boosted U.S. stocks this year. Even so, investors are likely to remain focused on the continuing trade war between the U.S. and China, which has showed little sign of ending soon.
Mike Bell, global markets strategist at J.P. Morgan Asset Management, said he has been scaling down his equities positioning to neutral having been overweight for some time, and is plowing more money into U.S. Treasurys. “The primary reason in the near term [is] the continuing uncertainty around the ongoing trade negotiations,” he said. “In the more medium term, the risk is that we’re pretty late cycle in the U.S. now.”
In commodity markets, Brent crude oil prices continued to push higher to $83.09 a barrel, up 0.4% on the day. That helped push the Stoxx Europe 600 oil & gas subindex up 0.6%, taking gains for this sector to 20% over the past six months. Elsewhere in Europe, Italy’s FTSE MIB index rose 0.5%, regaining some of its footing after slumping 3.7% Friday on news that the country’s anti-establishment government had widened its budget-deficit target. Italian bonds remained under pressure, though, with 10-year yields rising nearly 0.1 percentage point relative to haven German bonds Monday, according to Tradeweb. Yields rise as prices fall.
In the Asia-Pacific region, the Nikkei Stock Average rose 0.5%, Australia’s S&P/ASX 200 fell 0.6% and Korea’s Kospi Index slipped 0.2%. In bond markets, the yield on the 10-year Treasury inched up to 3.071%, according to Tradeweb, from 3.055% on Friday.