European shares advance as investors cheer US-Mexico trade deal

European shares advanced on Monday, led by carmakers, as the US and Mexico reached a trade deal, which may pave the way for Canada to come on board and change the wider North American Free Trade Agreement (Nafta).

The pan-European Stoxx 600 index closed 0.5 per cent higher.

DUBLIN

The Iseq index ended the session virtually unchanged at 6,796.30, up just 0.03 per cent on the day, with activity across the market proving to be listless as UK investors enjoyed a public bank holiday.

Kingspan declined by 1.1 per cent to €42 as some investors took profits off the table after shares in the insulation maker surged 9.3 per cent on Friday after it reported better-than-expected first-half results.

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Banking stocks were out of sorts, with AIB down 0.4 per cent at €4.81 and Bank of Ireland off 0.1 per cent at €7.10 as investors positioned themselves ahead of interim results from smaller rival Permanent TSB on Wednesday.

Irish Continental Group, which is set to unveil a decline in first-half earnings later this week, managed to edge 2.5 per cent higher to €1.60.

Ryanair gained 1.1 per cent to €14.05 as investors continued to digest the carrier's move late last week to charge for small suitcases carried on board by passengers.

EUROPE

Momentum across European markets was helped as investors on this side of the Atlantic got their first chance to react to a market-friendly speech from US Federal Reserve chairman Jerome Powell on Friday, in which he reaffirmed the central bank's current gradual pace of rate hikes. The comments sent Wall Street to record highs on Friday.

Car shares enjoyed their best day in a month with gains of 2.2 per cent. German carmakers, especially, rely on smooth trade between Mexico and the US to sell vehicles made in Mexican plants into the US market.

"The biggest risks the market were discounting were trade wars, so any reduction in trade war risk such as Nafta talks, or even Trump trying to find bilateral deals, has pushed US shares to new records and will support markets," said Angelo Meda, head of equities and portfolio manager at Banor SIM in Milan.

BMW, Volkswagen, Porsche and Daimler rose 2.5 to 3.0 per cent.

German wholesale group Metro's shares surged 13.3 per cent after Ceconomy announced it may join family-owned Haniel in selling a stake in the German retailer to an investor group led by Czech billionaire Daniel Kretínsky.

Lundin Petroleum shares climbed 3.5 per cent after Norway's Equinor increased its resource estimate for the Johan Sverdrup oilfield, in which Lundin has a 22.6 per cent stake.

Equinor, which has a 40 per cent stake in the field, gained 1.2 per cent.

The easing of trade tensions should be good news for the STOXX 600 which is down 1.2 per cent year-to-date due to political developments in Italy and Turkey. There was also good news on the data front on Monday, with a robust German business sentiment survey adding to signs of an improving euro zone outlook.

But while companies have delivered 10.9 per cent year-on-year growth in second-quarter earnings, valuations are low given risks such as Italy’s budget, which will be thrashed out in September.

NEW YORK

US stocks posted strong gains on Monday, with the benchmark S&P 500 and the Nasdaq hitting all-time highs, on the back of the US-Mexican trade deal.

The Dow Jones Industrial Average was up 0.9 per cent, at 26,012.26, the S&P 500 gained 0.70 per cent, at 2,894.81, and the Nasdaq Composite advanced almost 1 per cent to 8,021.11.

General Motors and Fiat Chrysler were among the bright spots. Caterpillar also climbed.

The defensive utilities and real estate sectors were down. Chipotle Mexican Grill slipped after Wedbush downgraded its shares, citing higher risks to the burrito chain's near-term same-store sales and margin estimates.

Tesla dropped after its founder and chief executive Elon Musk abandoned a plan to take the electric carmaker private.

– Additional reporting: Reuters, Bloomberg