by Pinchas Cohen
- Asian shares fall
- European shares rise
- Risk-on or Risk-off? It's confusing
Key Events
This morning, equity traders appear to have managed to redirect the market's focus away from yesterday's risk-off sentiment—most recently displayed during today's Asian session, fueled by North Korea’s persistent saber rattling and possible path to war—toward risk-on trading as signaled by the European open. European traders appear to be focusing on this week's packed calendar of events including multiple economic policy decisions.
The sharp shift may be a result of geography. Understandably, Asian markets are more cognizant of the North Korean threat and the proximity to local residents. The about-face may also be another episode of market ADD. Past symptoms have been in evidence among equity traders since the June 2016 Brexit referendum and its unexpected outcome. In this historically low-interest-rate and QE environment, equity valuations have been pushed up to pre-1927 and 2000 crash levels.
Still, the risk-on sentiment is evidently not shared by all. On the one hand, auto makers and metal miners are now leading the gains among most industry sectors on Europe's STOXX 600 Index, while European bonds decline.
On the other hand, S&P 500 Futures opened lower after Labor Day, while Treasuries advanced.
Adding to the confusing picture: the safe haven yen extended gains. Gold traders reached price consensus and gold steadied.
Perhaps traders and investors of American assets were more sensitive to the US ambassador to the UN Nikki Haley’s rhetoric that North Korea was “begging for war,” by testing a nuclear weapon over the weekend, again, as she demanded the strongest sanctions possible to bring the Kim Jong Un regime to compliance.
In a return move, West Texas Crude climbed for a third day, to retest the bearish pennant, within both an intermediary as well as a long-term downtrend, as discused in the previous posts, including Sunday's Week Ahead.
Among metals, copper gained the most, reaching a 3-year high.
Up Ahead
- Along with other economic numbers out of China this week, trade figures, expected to be release on Friday are anticipated to show another month of solid export growth, while FX reserves, tentatively scheduled for Thursday, probably continued to rise on stricter capital controls, robust growth and a stronger yuan, according to Bloomberg Intelligence.
- Federal Reserve Board member Lael Brainard speaks on the economic outlook and monetary policy later today, which may help set the tone for the Fed’s September 20 policy decision. Among other Fed speakers this week are New York Fed President Bill Dudley and Dallas Fed President Robert Kaplan.
- The European Central Bank meets on Thursday. President Mario Draghi will express concern over the euro’s strength, but won’t say much about his asset-purchase program’s future, according to a survey.
Market Movers
Stocks
- Japan’s TOPIX Index fell 0.8 percent at the close. It was the second time a lower trough was recorded, signaling a possible downtrend.
- South Korea’s KOSPI lost 0.1 percent.
- Australia’s S&P/ASX 200 Index rose 0.1 percent.
- Hong Kong’s Hang Seng Index fluctuated with indexes higher in China and Singapore.
- The MSCI Asia Pacific Index lost 0.1 percent. It slid 0.6 percent on Monday, its steepest drop since August 11.
- The Stoxx Europe 600 Index rose 0.4 percent as of 9:35 a.m. in London.
- The U.K.’s FTSE 100 gained 0.3 percent.
- Germany’s DAX climbed 0.6 percent to the highest point for the index in more than a week.
- S&P 500 Futures slumped 0.2 percent.
Currencies
- The Dollar Index is flat.
- The euro fell 0.1 percent to $1.1882.
- Sterling declined 0.1 percent to $1.2922.
- The Japanese yen climbed 0.2 percent to 109.49 per dollar, the strongest in more than a week on a closing basis.
- Bitcoin, which on Friday hit a milestone, closing near the $5,000 level, plummeted yesterday, losing 5.5% immediately after China banned initial coin offerings. At its lowest point on Monday it was trading near $4,000, but has since recovered slightly. Will its bull market get back on track?
Bonds
- The yield on 10-Year Treasuries fell two basis points to 2.14 percent.
- Germany’s 10-Year yield increased one basis point to 0.38 percent.
- Britain’s 10-year yield gained one basis point to 1.057 percent, hitting the highest in two weeks.
Commodities
- Gold declined 0.3 percent to $1,330.22 an ounce, the biggest drop in more than a week.
- West Texas Intermediate crude gained 1 percent to $47.74 a barrel, the highest in more than a week.
- Copper gained 1.5 percent to $3.16 a pound, the highest in about three years in the biggest rise in more than a week.