Stocks Soaring on Monday on Positive News from Fed and NAFTA Discussions

European stocks soared on Monday after a market-boosting speech by US Fed Chairman Jerome Powell. Signs of progress on the US-Mexico NAFTA trade agreement bolstered automobile stocks’ price higher.

The pan-European STOXX 600 increased 0.3 percent, with Germany’s DAX swelling 0.4 percent after new record highs from the US S&P 500 and Nasdaq following Powell’s decision to stick with the Fed’s forecast for “gradual” interest rate hikes.

Meanwhile, British markets were closed for a public holiday, making trading volumes remarkably thin across the region. The STOXX 600 was through just 6 percent of its average daily volume in the first 90 minutes of trading, which is usually the busiest time.

Auto stocks were the most notable performers, higher 0.9 percent after US President Donald Trump stated on Saturday that a trade deal with Mexico was near at hand.

Jesus Seade, who is set to be the chief negotiator for Mexico’s incoming government, stated that the issue of auto sector rules was “basically resolved” in talks with US Trade Representative Robert Lighthizer.

“The bigger 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,” stated Angelo Meda, who is the head of equities and a portfolio manager at Banor SIM located in Milan.

BMW, Volkswagen, and Daimler gained 1 to 1.6 percent. The German carmaker depend on smooth trade between the United States and Mexico to sell vehicles made in Mexican manufacturing plants into the US market.

Outside trade-driven moves, Metro shares rose 12.5 percent after Ceconomy announced that it may join family-owned Haniel in selling a stake in the German retailer to an investor group that is led by Czech billionaire Daniel Kretinsky.

Lundin Petroleum shares climbed 4 percent after Norway’s Equinor raised its resource estimate for the Johan Sverdrup oilfield, in which Lundin owns a 22.6 percent stake.

Equinor, which sports a 40 percent stake in the field, increased 0.9 percent.

Another strong booster to the pan-European index came from the Swiss drugmaker Novartis, whose shares climbed 0.5 percent after the company received European approval for Kymriah, which is its gene-modifyin therapy for blood cancer.

Shares in Spanish discount retailer DIA perked up 4 percent to the top of the IBEX after a report that said Russian magnate Mikhail Fridman has kicked off talks with other shareholders over a potential takeover bid by his LetterOne fund.

Meanwhile, among other movers, Germany-listed shares of US electric carmaker Tesla dropped more than 5 percent in early deals on the Tradegate exchange, signaling that the US stock will take a blow after Chief Executive Elon Musk called off his plan to take the company private.

Overall, the STOXX 600 is lower 1.2 percent year-to-date as the political developments in Italy and Turkey dragged the market, particularly to the banking stocks.

Although earnings growth has been robust, with companies delivering 10.9 percent year-on-year growth for the second-quarter earnings season, valuations are low with investors looking ahead to risks like Italy’s budget set to be thrashed out in September.

“Europe is one of the cheapest markets in the world, there is for sure a risk premium implied in the valuation,” stated Banor SIM’s Meda.

Italy’s FTSE MIB underperformed rivals, trading lower 0.2 percent.

“The only cloud on the horizon is Italy,” said Meda. “The feeling that I have is nobody has any will to take any risk in the next couple of weeks before we get more clarity on the budget.”

Meanwhile, US stock index futures indicated a higher open on Monday as news that the United States and Mexico were closing in on a trade deal.

“What we are seeing is optimism that there is going to be some resolution to trade difficulties and then there’s the news of the US and Mexico closing in on the NAFTA deal,” stated Scott Brown, who is chief economist at Raymond James in St. Petersburgh, Florida.

“Easing trade and NAFTA are probably the biggest things today but I think it’s more fundamental than that, because we’re still seeing a lot of signs of strength in the domestic economy and earnings stories have been very robust,” he explained.

Dow e-minis were higher 139 points, or 0.54 percent. S&P 500 e-minis were 11.25 points higher, or 0.39 percent. Nasdaq 100 e-minis were up 37.5 points, or 0.5 percent.

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