London (Reuters): World stocks reached record highs on Monday as better-than-expected company earnings and economic data from the United States stole the focus from rising geopolitical tension over North Korea’s nuclear program.
The U.S. dollar dipped slightly but held on to most of Friday’s gains - its biggest daily rise this year - made after data showed the United States created more jobs than forecast last month.
For those watching second quarter corporate results in recent weeks, there have been many such surprises. Of the nearly 1000 companies in the MSCI world index that have reported, 67% have beaten expectations, according to Reuters data.
These two factors helped nudge the flagship share index above a peak breached late last month, setting a new all-time high of 480.09 on Monday.
The Dow Jones, which recorded its eighth consecutive record high on Friday, was set to open up slightly on Monday.
Aside from a slight weakening in the Korean won, there was little financial market reaction to the news over the weekend that the U.N. Security Council unanimously imposed new sanctions on North Korea aimed at pressuring Pyongyang to end its nuclear program.
South Korean President Moon Jae-in and his U.S. counterpart, Donald Trump, agreed in a telephone call on Monday to apply maximum pressure and sanctions on North Korea, while China expressed hope that North and South Korea could resume contact soon. Yields on U.S. and German government bonds - seen as a safe haven in times of stress - held above one-month lows hit at the tail end of last week. A strong rise in U.S. and Asian stocks propelled the world index to a new high, with the strength of the euro providing a bit of a headache for European markets.
Earlier in Asian trading, MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.5% while Japan’s Nikkei added 0.5%.
Chinese blue chips were bolstered by data showing the country’s foreign exchange reserves rose twice as much as expected in July. A dramatic reduction in capital outflows - which are seen as one of China’s biggest risks - has helped boost confidence in the world’s second largest economy ahead of a key political leadership reshuffle in coming months. The euro zone’s main stock index edged lower, however, as the single currency headed back towards a 20-month high, a trend which appears to be denting profitability in certain sectors. [.EU]
Of the MSCI Europe companies having reported, 61% have either met or beat expectations. But focusing on industrial firms – of which many depend on exports, and are sensitive to a stronger euro – the beat ratio is just 37%.
The upbeat U.S. jobs data offers policymakers some assurance that inflation will gradually rise to the central bank’s 2% target, and likely clear the way for a plan to start shrinking its massive bond portfolio later this year.
But market pricing shows investors are still about evenly divided over whether the Fed will also opt to raise rates again in December.
For some analysts, Monday’s pull back in the dollar backs some views in markets that Friday’s rally may not have legs.
The dollar index, which tracks the greenback against a basket of six global peers, inched back 0.2% to 93.361. It rallied 0.76% on Friday, its biggest one-day gain this year.
The dollar slipped 0.2% against the euro to $1.1796 per euro, after surging 0.8% on Friday.
For the dollar rally to gain momentum, the market needs to change its interest rate pricing, Weston added.
In commodities, oil prices slid back from nine-week highs hit on Aug. 4 as worries lingered over high production from OPEC and the United States. Global benchmark Brent crude futures were down 60 cents, or 1.14%, at $51.82 a barrel. They traded as low as $51.56 a barrel earlier in the day.
Gold steadied as the dollar surrendered some of its gains, but remained under pressure. The precious metal was marginally lower at $1,257.41 an ounce, extending Friday’s 0.8% loss.