Stocks Steady as Tax Plans, Earnings Come Into Focus -- Update
Bank shares lower
-- Tax plan eyed
-- China trade surplus widens
Moves in global stock markets were muted Wednesday, with investors largely focused on a handful of corporate results and prospects for a U.S. tax overhaul.
The Stoxx Europe 600 edged down 0.2% in morning trading, while futures pointed to a flat opening for the S&P 500 after it snapped a five-day winning streak on Tuesday.
Bank shares continued to lag behind in Europe and Asia, tracking recent declines in government bond yields and mixed corporate results for the third-quarter. European lenders were down 0.5% on Wednesday and have fallen 3.4% so far this quarter--the worst performing sector.
Shares of French lender Crédit Agricole fell 4.5%, leading declines in the region, after it said its net profit recorded a double digit fall on the year. Dutch bank ABN AMRO Group also fell 2.3% after releasing third-quarter results.
Japan's Topix banks sector has fallen 1.8% so far this week.
Lower government bond yields tend to hurt lenders' profits, since they earn money on the difference between what they pay on deposits and what they charge to lend money. Yields on 10-year Treasurys were little changed Wednesday at 2.312% after falling to 2.309% Tuesday in their fourth straight day of declines. Yields move inversely to prices.
Yields have come under modest pressure in recent sessions amid concerns that disagreements could force the GOP to make changes to its tax bill and slow down plans to pass it by year's end.
A year after the U.S. presidential election, investors have realized that anything related to tax reform will take longer and look different than what was initially discussed, said Jonathan Mackay, investment strategist at Schroders.
"We do see a high probability for a tax cut, but it will probably be different from what we've seen from the Republican plan so far," he added.
He expects small cap U.S. stocks, which have lagged behind so far this month, to benefit most from any changes to the tax code since they pay a higher effective tax rate.
The proposed tax overhaul would likely lift the level of growth over the next year in a one-off effect, but what remains unclear is whether it would prompt corporations to increase their investments, said Nathan Sheets, PGIM Fixed Income's chief economist.
There is also the question of whether it is advisable to stimulate the economy when the U.S. is at, or just below, full employment, he added. "It's a bold experiment," he said.
Elsewhere in Europe, shares of Tullow Oil rose 3% after the independent oil & gas, exploration and production group raised its production guidance. Brent crude oil swung between small gains and losses in morning trading and was last up 0.1% at $63.74 a barrel after climbing to its highest since 2015 earlier this week.
Asian stocks were little changed following a lackluster session on Wall Street after many indexes across the region notched multiyear highs on Tuesday.
Japan's Nikkei Stock Average was down 0.1% from a near-26-year highs
Hong Kong's Hang Seng Index edged down 0.3% but shares of China Literature nearly doubled on their first day of trading amid the global frenzy for technology stocks.
The Tencent Holdings unit saw immense interest in its initial public offering, with retail investors' orders reaching about 625 times the amount of stock available. The company ultimately raised about $1.1 billion.
Shanghai stocks inched upward despite lackluster October trade data, with China's export and import volumes contracting from September, reflecting a slight easing of growth in other emerging markets along with weaker domestic demand as a result of slower infrastructure spending.
Saumya Vaishampayan and
Ben Collins
contributed to this article.
Write to Riva Gold at riva.gold@wsj.com and Ese Erheriene at ese.erheriene@wsj.com
(END) Dow Jones Newswires
November 08, 2017 05:31 ET (10:31 GMT)