A host of strong earnings boosted U.S. stocks on Tuesday and world stocks edged higher in anticipation of central bank easing, while sterling fell after Brexit hardliner Boris Johnson won the leadership of Britain’s Conservative Party, clearing the way for him to become prime minister.
Dow components Coca-Cola Co and United Technologies Corp both beat second-quarter earnings expectations as the reporting season shifts into high gear.
“When you combine a loosening Fed and better-than-expected earnings, that should be gas in the tank for stocks,” said Oliver Pursche, chief market strategist at Bruderman Asset Management in New York.
“The offset to that is the IMF report,” Pursche added.
The International Monetary Fund cut its global growth forecast for this year and next, citing concerns about the protracted tariff disputes between the United States and its trading partners and the prospect of Britain exiting the European Union (Brexit) without a deal.
The Dow Jones Industrial Average rose 177.29 points, or 0.65 per cent, to 27,349.19, the S&P 500 gained 20.44 points, or 0.68 per cent, to 3,005.47 and the Nasdaq Composite added 47.27 points, or 0.58 per cent, to 8,251.40.
Canada’s main stock index rose on Tuesday, tracking gains in global equities as investors anticipate major central banks to cut interest rates in the near future.
The Toronto Stock Exchange’s S&P/TSX Composite index was up 53.80 points, or 0.33 per cent, at 16,572.68.
Nine of the index’s 11 major sectors were higher.
The energy sector climbed 0.6 per cent as crude prices rose.
The financials sector gained 0.5 per cent, while the industrials sector rose 0.1 per cent.
The European STOXX 600 benchmark rose about 1 per cent, helped by a 6 per cent surge in automakers and growing certainties of policy easing from the European Central Bank and the U.S. Federal Reserve.
The pan-European STOXX 600 index rose 0.98 per cent and MSCI’s gauge of stocks across the globe gained 0.28 per cent.
The dollar hit a two-week high against a basket of world currencies, on the heels of a congressional deal to extend the U.S. debt limit for two years, easing fears of a government default.
But the British pound slid after Johnson, who has promised to lead Britain out of the European Union with or without a deal by the end of October, won the Conservative Party leadership and will replace Theresa May as the country’s prime minister.
“At best you’d describe Boris Johnson as an unpredictable force,” said Pursche. “He’s not somebody who’s going to calm markets.”
With Johnson at the helm, credit ratings agency Moody’s and investment Goldman Sachs both warned the risk of a no-deal Brexit was now higher.
“We raise our odds on a ‘no deal Brexit from 15 per cent to 20 per cent, and we reduce our odds on ‘no Brexit’ at all from 40 per cent to 35 per cent,” Goldman said.
The dollar index rose 0.41 per cent, with the euro down 0.47 per cent to $1.1155.
The Japanese yen weakened 0.20 per cent versus the greenback at 108.11 per dollar, while sterling was last trading at $1.2445, down 0.23 per cent on the day.
Oil rose to almost $64 on Tuesday, jumping late in the session after the head of U.S. Central Command said the United States may have taken down a second Iranian drone over the Strait of Hormuz last week.
Rising tensions in the Middle East offset the International Monetary Fund’s weaker global growth outlook, which had kept prices largely flat for much of the Tuesday session.
Iran’s capture of a British oil tanker last week sparked worries about supply disruptions in the Strait of Hormuz, through which about a fifth of the world’s oil flows. The United States had said a Navy ship “destroyed” a drone there after it threatened the vessel, but Iran said it had no information about losing a drone.
“We are confident we brought down one drone, we may have brought down a second,” General Kenneth McKenzie told CBS News in an interview.
The U.S. warship Boxer may have brought down a second drone last week, a U.S. official told Reuters on the condition of anonymity, though they are still working to confirm it.
Brent crude settled up 57 cents, nearly 1 per cent, to $63.35 a barrel. U.S. West Texas Intermediate crude settled up 55 cents, about 1 per cent, at $56.43.
U.S. Treasury yields inched higher as market participants eyed upcoming ECB and Fed meetings for new signals about how many interest rate cuts can be expected.
Benchmark 10-year notes last fell 5/32 in price to yield 2.0602 per cent, from 2.043 per cent late on Monday.
The 30-year bond last fell 19/32 in price to yield 2.5966 per cent, from 2.57 per cent late on Monday.
Gold prices were a bit lower, held in check by a robust dollar.
Spot gold dropped 0.2 per cent to $1,422.50 an ounce.
Copper lost 0.71 per cent to $5,975.00 a tonne.
Three-month aluminum on the London Metal Exchange rose 0.11 per cent to $1,818.00 a tonne.
Reuters