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Stocks Boosted by Earnings as Metals, Iron Ore Surge

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European and Asian stocks rose with U.S. equity index futures and industrial metals, buoyed by a generally upbeat corporate earnings season and signs of improvement in the world’s biggest economies. Australia’s dollar strengthened and the yen fell.

The Stoxx Europe 600 Index and the MSCI Asia Pacific climbed to their highest levels in more than two weeks. The Aussie led gains among the currencies of resource-exporting nations, while the Bloomberg Dollar Spot Index held near a seven-month high. Rising steel output and prices in China spurred jumps in zinc and iron ore, while Japanese bonds rose after demand firmed at an auction.

About 80 percent of S&P 500 Index members to have announced earnings so far exceeded analysts’ forecasts and that’s supporting investor sentiment as improving U.S. economic indicators bolster the case for the Federal Reserve to raise interest rates. American manufacturing is the strongest in a year and the euro area economy is expanding at the fastest pace of 2016, data showed Monday. Apple Inc., the world’s biggest company, is due to release results on Tuesday and second-ranked Alphabet Inc. reports Thursday.

“With the U.S. economy looking solid and a rate hike by year-end looming in investors’ minds, the yen is weakening, and boosting expectations for a recovery in earnings in the second half of the year,” said Toshihiko Matsuno, a senior strategist at SMBC Friend Securities Co. in Tokyo.

The outlook for U.S. interest rates may be influenced on Tuesday by American consumer confidence data and a speech by Fed Bank of Atlanta President Dennis Lockhart. European Central Bank President Mario Draghi is due to speak in Berlin and a gauge of business sentiment in Germany is scheduled for release. A comparable measure of confidence in France was unchanged from last month, a report showed.

Stocks

The Stoxx Europe 600 Index added 0.2 percent as of 8:13 a.m. London time. Orange SA climbed by the most since June after reporting an increase in earnings and Air Liquide SA rose 1 percent following its results. Novartis AG slipped to a four-month low after Europe’s second-biggest drugmaker by sales said profit fell for the seventh straight quarter.

The MSCI Asia Pacific Index advanced 0.4 percent. Japan’s Topix index climbed to the highest since May and Australia’s S&P/ASX 200 Index rebounded from a one-week low.

Nidec Corp., the world’s biggest maker of precision motors for hard-disk drives, surged by the most in three months in Tokyo after reporting a profit that beat analysts’ estimates. SK Hynix Inc., a supplier of memory chips to Apple, gained 2.2 percent in Seoul following its results.

The Kospi index slid 0.5 percent after the Korea Tourism Board said China is trying to suppress outbound tourism to South Korea. Hotel Shilla Co. and cosmetics company AmorePacific Corp. tumbled by about 7 percent as investors dumped shares of Korean companies that derive significant income from Chinese visitors, who accounted for almost half of arrivals in September. Relations between the two nations have been strained by plans for a U.S. missile defense system to be deployed in South Korea.

Futures on the S&P 500 gained 0.1 percent. Analysts now predict third-quarter earnings for the benchmark’s members will be flat year-on-year, better than projections for a 1.5 percent contraction a month ago.

Currencies

The Aussie strengthened 0.2 percent versus the greenback, while New Zealand’s dollar and South Africa’s rand rose 0.1 percent amid a pickup in commodities prices.

The Bloomberg Dollar Spot Index held near its highest level since March after federal funds futures prices indicated that the chance of a Fed rate hike this year increased by three percentage points on Monday to 71 percent. The gauge of the greenback’s strength gained in the last session after a preliminary U.S. purchasing managers’ index rose and Fed Bank of Chicago President Charles Evans said it’s likely that interest rates will be hiked three times by the end of 2017. The yen fell 0.2 percent.

“Evans probably had a stronger impact than the PMI on the strength of the dollar,” said Kyosuke Suzuki, head of currency and money-market sales at Societe Generale SA in Tokyo. “There aren’t many senior Fed officials who have come out with specific numbers of expected rate increases. That’s providing a tailwind for the dollar.”

Canada’s dollar weakened 0.4 percent, erasing most of the last session’s rebound from a seven-month low, after central bank Governor Stephen Poloz clarified earlier remarks that had curbed speculation interest rates will be cut. Poloz said he wasn’t referring to monetary policy when he told lawmakers that the best plan was “to wait for the next 18 months or so.”

The yuan held near a six-year low in Shanghai and reached its weakest level on record in the offshore market, which began trading in 2010. The onshore exchange rate declined in all but one of this month’s 11 trading sessions through Monday, a sign the central bank has reduced support since the yuan’s inclusion in the International Monetary Fund’s Special Drawing Rights on Oct. 1.

The won weakened 0.2 percent, weighed down by the spat with China and concern about exports. South Korea’s economy expanded 0.7 percent in the third quarter from the previous three months, when it gained 0.8 percent, data showed Tuesday. Net exports shaved 0.6 percentage point off gross domestic product.

Commodities

Zinc, used to galvanize steel, jumped as much as 4.8 percent to a five-year high on the Shanghai Futures Exchange and hot-rolled steel coil climbed to levels last seen in April. Iron ore surged by the daily limit of 6 percent on the Dalian Commodity Exchange, while coking coal rallied to an all-time high.

“On the demand side, steel is a leading indicator,” said Helen Lau, an analyst at Argonaut Securities Asia Ltd. in Hong Kong. “While the property market is subject to cooling measures, the infrastructure side in China is still good and that supports overall demand.”

Crude oil rose 0.2 percent to $50.64 a barrel in New York, having declined 0.7 percent on Monday after Iraq said it should be exempted from planned production cuts being orchestrated by the Organization of Petroleum Exporting Countries. The head of OPEC is set to visit Baghdad on Tuesday for talks aimed at resolving the matter.

Bonds

The yield on U.S. Treasuries due in a decade was steady at 1.76 percent, after climbing three basis points in the last session. It will have to rise if the Fed’s Evans proves correct with this prediction for three interest-rate increases by end-2017, according to Kim Youngsung, head of overseas investment at South Korea’s Government Employees Pension Service in Seoul.

After one increase “for sure” in December, two more in 2017 will send the 10-year yield past 2.5 percent, Kim said. Economists predict the benchmark will end next year at 2.14 percent, according to a Bloomberg survey with the most recent forecasts given the heaviest weightings.

Japan’s 20-year government bonds rose for a fourth day after demand picked up at an auction of the securities on Tuesday. The yield fell 1/2 a basis point to 0.37 percent, matching its lowest level of the past three weeks.

Source: Bloomberg