Monday 21:00 BST. US and European equities began the new quarter on an uncertain note, as lingering worries over eurozone banks and mixed performances from energy stocks — even as Brent oil hovered above the $50 a barrel mark — offset some positive US economic data.
The UK’s internationally-focused FTSE 100 share index outperformed as Brexit concerns helped push sterling down sharply against the dollar and the euro. Gold retreated for a fifth successive session.
In New York, the S&P 500 equity index slipped 0.3 per cent to 2,161, with Deutsche Bank’s US-listed stock down 0.5 per cent in late trade after a 14 per cent jump on Friday, driven by hopes of the lender reaching a settlement with the Department of Justice for mis-selling mortgage-backed securities.
The S&P 500 energy sub-index was down 0.1 per cent — providing a marked contrast with Europe, where a 0.5 per cent rise for the oil and gas production sector helped the pan-regional Stoxx 600 index inch up 0.1 per cent. The Frankfurt market was shut for a holiday.
The divergent trends for energy stocks on either side of the Atlantic came as Brent oil spent much of the day above $50 a barrel in the wake of last week’s surprise agreement by Opec members to cut production in a bid to raise crude prices.
Capital Economics highlighted that while Opec said it intended to limit production to between 32.5m and 33m barrels a day, down from about 33.3m in August, the details would not be decided until the cartel’s next official meeting in November.
“We remain sceptical about the deal for a number of reasons, not least because any reduction in supply and increase in prices will incentivise US producers to bring back more drilling rigs,” Capital said.
“On a more tangible note, US stocks of crude oil have fallen sharply over the past month, but total stocks of petroleum products have continued to grow.”
Brent — which rose nearly 7 per cent last week — settled 1.4 per cent higher on Monday at a six-week intraday high of $50.89. US West Texas Intermediate was up 0.9 per cent at $48.66 in late trade.
There were some big gains for UK-listed oil stocks — BP rose 1.9 per cent and Royal Dutch Shell more than 2 per cent — with sterling’s latest bout of weakness providing further support for the London market, as the FTSE 100 rose 1.2 per cent.
The pound hit a three-year low against the euro of €1.1430 — and neared July’s three-decade trough versus the dollar below $1.28 — after Theresa May, prime minister, announced that she would trigger Article 50 by March 2017, setting the stage for the UK to formally exit the EU two years later.
Michael Every, analyst at Rabobank, noted that Mrs May had made clear there would be no compromise on immigration, and that “the UK must look beyond Europe for economic success.”
“It is generally considered that the more Mrs May insists on immigration control, the more the EU is likely to close access to the single market, meaning that the UK appears to be setting the course towards a ‘hard’ Brexit — though this is a term that PM May has tried to dismiss,” Mr Every said.
“The drop in the value of the pound today reflects investors’ concerns.”
Sterling was later down 0.7 per cent against the euro at $1.1459 and was 0.9 per cent softer versus the dollar at $1.2854.
The dollar found some support from the latest US manufacturing survey from the Institute for Supply Management. The headline index bounced to 51.5 last month from a seven-month low of 49.4 in August, taking it back above the 50 level that nominally separates contraction from expansion.
The dollar index, a measure of the currency against a weighted basket of peers, was up 0.2 per cent, as the euro slipped 0.2 per cent to $1.1215 and the dollar rose 0.3 per cent versus the yen to ¥101.59.
Gold was down $4 at $1,311 an ounce, its lowest for almost two weeks.
Ahead of the release of the keenly-awaited September employment report on Friday, the yield on the policy-sensitive two-year US Treasury note — which moves inversely to its price — was up 3 basis points at 0.80 per cent.
The 10-year German Bund yield rose 2bp to minus 0.09 per cent. The final reading of the September eurozone manufacturing purchasing managers’ index confirmed the flash estimate of a slight pick-up in the sector at the end of the third quarter.
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