Euro Stocks Rise, Dollar Strengthens, Oil Falls

Stocks started the week on a positive note as the corporate earnings season heats up, while the dollar extended gains versus the euro ahead of speeches by Federal Reserve officials that may provide clues on the timing of the next US interest-rate hike.

The Stoxx Europe 600 Index rose to a one-month high as Royal Philips NV surged after results, while Asian shares gained with US equity index futures. The Bloomberg Dollar Spot Index held near a seven-month high, buoyed by the prospect of US monetary tightening at a time of record stimulus in Europe and Japan. The yuan sank toward its all-time low in the offshore market following a pickup in China’s capital outflows, while crude oil declined after Iraq balked at joining OPEC-led efforts to trim output. Portuguese bonds surged.

Three of the world’s four biggest companies by market value, including Apple Inc., are due to announce results this week in America, while China has all four of its largest listed banks reporting and updates are also coming from more than 350 members of Japan’s Topix index. Initial gauges of this month’s manufacturing activity in the euro area and the US are scheduled Monday and these may influence the monetary policy outlooks for those economies.

“Earnings is the key metric for investors,” said Matthew Sherwood, head of investment strategy in Sydney at Perpetual Ltd., which manages about $21 billion. “Meanwhile, there are a number of important macro events which are holding the market back, including the US election early next month and key Fed and ECB meetings in December.”

Stocks

The Stoxx Europe 600 Index climbed 0.7% as of 8:22 a.m. London time. Royal Philips NV jumped by the most since January after the Dutch company announced a 14% increase in third-quarter profit.

The MSCI Asia Pacific Index rose 0.4%, reversing an earlier loss. The Shanghai Composite Index rallied to a nine-month high amid speculation China will boost fiscal spending and follow through with pledges to overhaul the ownership structure of state-owned firms. Hong Kong’s Hang Seng Index gained 1% from Thursday’s close as trading resumed following a typhoon on Friday.

S&P 500 Index futures rallied 0.4% before American companies including Visa Inc. and T-Mobile US Inc. announce quarterly earnings on Monday. About 80% of the 118 members of the S&P 500 that have reported so far beat expectations, though analysts still forecast a contraction in profits. AT&T Inc. said over the weekend it agreed to buy Time Warner Inc. for $85.4 billion.

Currencies

The Bloomberg Dollar Spot Index fluctuated ahead of Monday speeches by Fed Governor Jerome Powell and regional Fed presidents for New York, St. Louis and Chicago. The chance of a rate hike this year increased by two%age points last week to 68% in the futures market.

The euro weakened for a fifth day, its longest losing streak in five months, after the European Central Bank signaled last week that its quantitative-easing program is likely to run past the currently scheduled end-date of March 2017. Speculators have increased their bearish-euro bets to the most since July.

“The euro is coming under pressure from monetary policy divergence as the ECB looks set to prolong its accommodative stance, while the Fed is probably paving the way for a December rate hike,” said Jun Kato, a senior fund manager in Tokyo at Shinkin Asset Management. “There is a longer-term view of a sinking Europe versus a resilient US, which may also be behind the dollar’s general strength.”

The yuan fell 0.1% to a six-year low in Shanghai and was 0.1% shy of its all-time low in the offshore market, which started in 2010. A net $44.7 billion worth of yuan payments left China in September, the most in data going back to 2010, the currency regulator reported Friday. Goldman Sachs Group Inc. estimated on Friday that China’s outflows totaled about $500 billion in the first nine months of this year.

“Market sentiment will be relatively negative in the near term as the offshore yuan tests record lows," said Zhou Hao, an economist at Commerzbank AG in Singapore. "In the long term, China will still see net funds exit."

Commodities

Crude oil fell 0.2% to $50.75 a barrel in New York, after advancing 0.8% on Friday. Iraq’s oil minister said Sunday that the nation should be exempted from production cuts proposed by the Organization of Petroleum Exporting Countries because it’s embroiled in a war with Islamic militants. The country is the group’s second-largest producer.

Industrial metals advanced across the board following a seven-day slide in the London Metal Exchange’s LMEX Index. Nickel led gains with a 0.9% increase, after sinking 5% last week.

Gold was little changed after advancing 1.2% last week. The net-long position in bullion futures and options fell to the lowest in more than seven months during the week ended Oct. 18, according to Commodity Futures Trading Commission data released Friday.

“Market participants will be watching for any data that could drive the FOMC to raise rates,” Jason Schenker, president of Prestige Economics LLC, said in a note received on Monday, referring to the policy-setting Federal Open Market Committee by its initials. “Near-term Fed-hawkish, dollar-bullish factors threaten to send gold prices lower.”

Bonds

Portugal’s 10-year bond yield slid 14 basis points to 3.06%, the lowest level in more than a month. The nation’s credit rating was retained at investment grade by DBRS Ltd., securing eligibility of the country’s debt for the European Central Bank’s bond purchase program.

Treasuries due in a decade were little changed and yielded 1.73%, after the rate sank six basis points last week. US government debt handed investors a 0.6% loss in the month through Sunday, still the best performance in dollar terms among 26 major markets. U.K. notes ranked last with an 8.7% loss.

Sovereign notes declined around the world since the middle of the year amid speculation that the Fed was moving closer to raising interest rates. The Bank of Japan dropped a plan to push yields lower and switched to targeting bond levels, while ECB officials who asked not to be identified said the authority will probably gradually wind down its bond purchases.

“The Fed hiking the rate, and the less dovish monetary policy stance of the BOJ and the ECB, is hitting the performance of government bonds,” said Hiroki Shimazu, an economist and strategist at the Japanese unit of MCP Asset Management in Tokyo. “In the US, the outlook for a Fed hike this year offsets that damage because of a higher US dollar. I’m bullish on the dollar.”

Government bonds with maturities of up to 10 years were generally slightly lower in Japan as the BOJ refrained from purchasing any sovereign debt ahead of an auction of 20-year notes on Tuesday. Two- and five-year yields touched their highest levels of the month.