Stocks Start Second Half On an Upswing

By Riva Gold Features Dow Jones Newswires

Global stocks started the second half of the year firmer as a flurry of manufacturing readings added to confidence in the health of the world economy.

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The Stoxx Europe 600 was up 0.7% in afternoon trading Monday, on track to snap a four-session losing streak. Asian markets mostly settled slightly higher, while the S&P 500 and Dow Jones Industrial Average were poised to open up 0.3% after closing out their seventh consecutive quarters of gains.

June marked the best month for eurozone factories in more than six years, data showed Monday, following signs of momentum in Japan and China. Shares of banks, energy companies and miners led gains in Europe, which typically indicates confidence in the strength of the global economy and the outlook for commodities.

As investors favored risk assets, gold fell 0.9% to $1,231.20 an ounce, around its lowest since May, while the dollar rose 0.5% against the yen.

The U.S. ISM manufacturing report is expected later Monday.

"The big question for markets is now: Is this soft patch in the U.S. behind us?" said Michael Herzum, head of multiasset strategy at Union Investment. Mr. Herzum said that growth momentum appears to have flattened in recent months, but if the economy shows an improvement, stocks might regain some momentum.

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Trading volumes are expected to be lower at the start of the week ahead of the July 4 holiday in the U.S., with some markets set to close early on Monday and shut down on Tuesday.

In Europe, oil-and-gas companies advanced Monday, tracking a rise in oil prices after local markets closed Friday. Brent crude oil was last up 0.4% at $48.95 a barrel, on track for an eighth straight session of gains.

A widening gap between U.S. and European government bond yields was reflected in currency markets. The euro fell 0.5% to $1.1375 while the wider WSJ Dollar Index edged up 0.4% after its worst quarter since the start of 2016.

German 10-year government bond yields fell to 0.451% from 0.472% Friday after European Central Bank executive board member Yves Mersch said Sunday the ECB hasn't yet done enough to create a sustained economic recovery in the eurozone. Expectations that global central banks, including the ECB and Bank of England, might be moving away from ultra-accomodative monetary policy sent government bond yields sharply higher last week.

U.S. 10-year Treasury yields edged up to 2.305% from 2.298% on Friday while two-year yields rose to 1.388% from 1.385%, their highest since 2009. Yields move inversely to prices.

"Our perspective is we're going to have pretty modest growth and modest inflation" in the second half of the year, said Greg Woodard, who directs portfolio strategies at Manning & Napier. "We see rates grinding a bit higher but [monetary] conditions are going to remain fairly accommodative around the world," Mr. Woodard said.

For stocks, many, including Mr. Woodard, expect the rally to pause given how far equities have climbed in the first half of the year.

"We've reduced risk after being long for almost six months," Mr. Herzum said. "We think the bulk of the earnings upgrades are now done," he said.

The second quarter of 2017 featured the smallest decline in the bottom-up earnings-per-share estimate for the S&P 500 in three years, according to analysis by John Butters at FactSet. Analysts still expect earnings-per-share to increase 6.6% in the second quarter, according to FactSet.

Earlier, stocks in Asia mostly inched higher as investors held back on making decisive bets in the absence of a firm lead from the U.S.

Hong Kong's Hang Seng added 0.1% after its best first-half performance since 2009, while Japan's Nikkei Stock Average was also 0.1% higher as a central bank survey showed business confidence among the nation's large manufacturers strengthened to its highest level in more than three years in the second quarter.

Shares of Toshiba fell in afternoon trading, offsetting gains elsewhere, after The Wall Street Journal reported that a plan for the sale of the Japanese company's semiconductor unit includes an option for South Korean chip maker SK Hynix to take a minority stake in the business, contradicting Toshiba's public statements.

The Shanghai Composite inched up 0.1% after a private gauge of China's factory activity rebounded in June to show an expansion, echoing last week's official data.

China's bond market showed little reaction as the Bond Connect link -- a program allowing foreign investors to buy into the world's third-biggest bond market via Hong Kong -- went live.

The newly opened bond-trading link between Hong Kong and mainland China could result in an initial capital inflow of up to $250 billion, according to Ping An Asset Management. Still, that would be only a fraction of the country's $9 trillion bond market.

Australia's S&P ASX 200 fell 0.6%, bucking the regional trend, as major banks extended last week's drop and utilities and property trusts came under pressure.

--Ese Erheriene,

John Wu

,

Shen Hong

,

Paul Hannon

and Megumi Fujikawa contributed to this article.

Write to Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

July 03, 2017 09:17 ET (13:17 GMT)