Traders shake off global risk — North Korea — and push stocks higher
Putin warns that threatening military action could trigger "a global catastrophe", but investors move out of bonds, gold and other safe-haven assets
London — On Tuesday, Europe’s financial markets appeared to have already shaken off the jitters prompted by North Korea’s latest nuclear test, with stocks pushing higher and investors reversing out of bonds, gold and other safe-haven assets.
As with many political risks over the past couple of years, traders showed again that there is now a reluctance to price in the tail risks on every possible bad outcome and are instead focusing on the more prosaic but upbeat global economic picture.
Confirmation that eurozone business activity remained robust last month helped the pan-European STOXX 600 claw back most of the 0.5% it lost on Monday amid international condemnation of North Korea’s nuclear test.
The euro also tip-toed higher as risk appetite tentatively returned and the data, which also showed rising inflation pressures, put the focus back on Thursday’s European Central Bank meeting.
European government bond yields also crept up and gold — the traditional go-to for traders when geopolitical concerns escalate — eased off a one-year high, dropping for the first time in four days.
"What the recent episodes have shown is that you should not really try to follow these things as they tend to fade quickly," said ING’s chief Europe, the Middle East and Africa forex and rates strategist, Petr Krpata. "It is less and less surprising for markets every time, so for us it is not a reason to change our constructive view on carry currencies."
Overnight, China’s Caixin/Markit services purchasing managers’ index (PMI), a forward-looking economic indicator, rose to 52.7 in August, the highest reading in three months. The market reaction to this was muted, however, with sentiment in Asian equity markets still subdued. Chinese bourses eked out small 0.2% to 0.3% gains, but Seoul and Tokyo remained red.
Speaking at a summit of the world’s biggest emerging economies in China, Russian President Vladimir Putin again warned that imposing tougher sanctions on North Korea and threatening military action could trigger "a global catastrophe".
"Russia condemns North Korea’s exercises, we consider that they are a provocation ... (but) ramping up military hysteria will lead to nothing good," he told reporters.
In commodity markets, US West Texas Intermediate (WTI) oil prices edged higher, while US petrol prices slumped to pre-Hurricane Harvey levels, as oil refineries and pipelines in the US Gulf Coast slowly resumed activity, easing supply concerns.
WTI crude futures ticked up 0.2% to trade at $47.38 a barrel, though global benchmark Brent prices barely budged at $52.37. The earlier, re-assuring China PMI data helped copper hit its latest three-year high in industrial metals markets, and nickel, which is used in stainless steel, also hovered near a 14-month peak.
Elsewhere, bitcoin dropped further from Saturday’s all-time high of $4,979.9 to trade at $4,012. On Monday, China said it was banning the practice of raising funds through launches of token-based digital currencies, or so-called initial coin offerings (ICO).