Global equity markets rallied on Monday, with each of Wall Street’s three major averages kicked off the trading week by closing at records, as revived hopes the United States and China could soon sign an interim deal to end their prolonged trade war lifted investor sentiment.
A burst of merger activity also lifted equities, with trade-sensitive miners in Europe and semiconductors on Wall Street climbing on reports suggesting the world’s two largest economies were close to an initial trade deal.
European shares posted their best day in three weeks as France’s LVMH agreed to buy luxury jeweler Tiffany & Co for $16.2-billion, and Swiss drugmaker Novartis agreed to a $9.7-billion acquisition of The Medicines Co.
In the United States, TD Ameritrade Holding Corp agreed to an all-stock deal valued at $26 billion.
The big driver of equity market gains were reports that an elusive “phase one” U.S.-Sino trade agreement was near.
“The market’s really assuming that we get an initial deal,” Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. “There’s a lot of optimism, excessive optimism, but there is still some upside assuming that it does occur.”
Corporate management has put on hold capital expenditures on property, plant and equipment because of uncertainty surrounding the deal, which has dragged on the industrial side of the economy, Ghriskey said.
“I don’t see the market selling off when eventually we get a deal, but there’s limited upside at that point,” he said.
U.S. national security adviser Robert O’Brien said on Saturday that a trade pact was still possible by year’s end, while Chinese state-backed tabloid Global Times said Beijing and Washington were “very close” to a “phase one” trade deal.
Adding to the positive mood was the weekend announcement that China would seek to improve protections for intellectual property rights, a sticking point in the talks.
Canada’s main stock index rose for the first time in six sessions on Monday, as appetite for riskier assets improved around the globe.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially up 78.02 points, 0.46 per cent, at 17,032.86.
Also helping the mood was deal making activity.
Detour Gold Corp jumped 1.8 per cent after bigger rival Kirkland Lake Gold Ltd agreed to buy the miner for about $4.89-billion in an all-stock deal. Kirkland Lake shares fell over 17 per cent.
Kirkland Lake’s share decline weighed on the broader materials index, which shed 0.6 per cent.
Leading the index were Interfor Corp., up 4.5 per cent, Martinrea International Inc., up 4.3 per cent, and West Fraser Timber Co Ltd., higher by 3.8 per cent.
Lagging shares included Aurora Cannabis Inc., down 6.7 per cent, and Transcontinental Inc., lower by 3.1 per cent.
The Canadian dollar was unchanged against its U.S. counterpart on Monday, steadying after it declined last week, as strong domestic data offset evidence that a strike at Canada’s biggest railroad was taking a toll on the country’s economy
Canadian wholesale trade rose by 1.0 per cent in September from August, much stronger than the 0.4-per-cent gain that was expected. Sales grew by 0.9 per cent in volume terms.
“Wholesale trade provided a nice lift to September economic activity in Canada that otherwise had looked fairly tepid,” Avery Shenfeld, chief economist at CIBC Capital Markets, said in a note.
“Markets don’t typically react to this series, but might take note of the firmer real GDP print later this week that incorporates these data,” Shenfeld said.
Canada’s gross domestic product data for the third quarter is due on Friday, which could help guide expectations for next week’s Bank of Canada interest rate decision.
The strike at Canadian National Railway Co became a bigger threat to economic growth in the fourth quarter. Fertilizer company Nutrien Ltd said it was planning production cutbacks, while grain exporters warned buyers they could not fulfill sales terms.
Economists have estimated a prolonged strike could cost the Canadian economy billions of dollars.
The Canadian dollar was trading unchanged at 1.3304 to the greenback, or 75.17 U.S. cents. The currency, which declined 0.6 per cent last week, traded in a range of 1.3286 to 1.3319.
The loonie has been pressured since October by a more dovish stance from the Bank of Canada. Last Wednesday, it hit a near six-week low at 1.3328.
MSCI’s gauge of stocks across the globe gained 0.64 per cent and its emerging markets index added 0.51 per cent. The pan-European STOXX 600 index rose 1.0 per cent.
Apple Inc, Microsoft Corp and Amazon.com, along with microchip stocks, drove U.S. stocks higher.
The Dow Jones Industrial Average rose 189.77 points, or 0.68 per cent, to 28,065.39, the S&P 500 gained 23.27 points, or 0.75 per cent, to 3,133.56 and the Nasdaq Composite added 112.60 points, or 1.32 per cent, to 8,632.49.
Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan bounced 0.7 per cent and Japan’s Nikkei firmed 0.7 per cent.
Gold fell for a fourth straight session, sliding to a two-week low, as investors’ appetite for riskier assets increased on the renewed optimism over a trade deal.
U.S. gold futures settled down 0.5 per cent at $1,456.90 an ounce.
Oil prices rose.
Brent crude futures gained 26 cents to settle at $63.63 a barrel and West Texas Intermediate (WTI) crude rose 24 cents to settle at $58.01 a barrel.
Core euro zone bond yields rose slightly, as positive trade developments trumped last week’s weak euro zone data.
The German benchmark 10-year bond yield rose two basis points in early London trading before easing to trade almost flat on the day at -0.349 per cent.
U.S. Treasury yields slid ahead of the Treasury Department’s scheduled sale of $113 billion in coupon-bearing supply this week, and as investors focused on the likelihood that the United States and China will reach a trade deal.
Benchmark 10-year notes rose 3/32 in price to push their yield down to 1.7620 per cent.
The dollar index rose 0.05 per cent, with the euro down 0.12 per cent to $1.1008. The Japanese yen weakened 0.29 per cent versus the greenback at 108.96 per dollar.