Asian markets gained broadly on Monday as risk appetite remained strong, and investors shrugged off the potential for escalating tensions between North Korea and the U.S. In fact, South Korea’s market made the best gains of the day, followed closely by Hong Kong’s Hang Seng. Australia saw strength from the banking sector, but weakness from the mining sector kept a cap on gains as raw commodity prices began the week with softness.
European markets followed the Asian session higher, as investors are increasingly desensitized to tensions caused by North Korean rhetoric and actions. The rally across the region was broad based, with financial shares leading the way higher. In economic news, Eurozone inflation and core inflation were both reported in-line with expectations. London’s FTSE snapped a four session losing streak, rising higher as the Pound retreated following comments from Bank of England governor Mark Carney that backtracked on a potential U.K. interest rate hike later this year.
U.S. markets saw gains as well, with investors snapping up shares of industrial and financial companies in a broad based rally that saw the Dow and S&P500 closing at new record highs, while the Nasdaq posted a smaller gain as technology shares pulled back in the afternoon. While worries about North Korea continue to recede and boost risk appetite, investor confidence is also getting a boost from global economic data supporting the thought that growth is coming, albeit slowly. This should keep markets moving higher for now, although the two-day Federal Reserve meeting, which begins Tuesday, could serve to cause some caution in the short-term.
FOREX
EUR/USD
The pair continued a slow ascent on Monday, rising for the third day off the bullish candle printed last Thursday. With the U.S. Federal Reserve starting their two-day monetary policy meeting today we could get some caution coming into the market however, which might mean a pullback, but we think that the daily range for the pair will remain fairly tight until the actual monetary policy announcement on Wednesday.
USD/CAD
The pair jumped higher on Monday, gaining more than 1% after the Bank of Canada deputy governor said that the BoC was not considering tightening interest rates, and they are high enough already given the current economic growth. The upcoming US Federal Reserve meeting likely played into the move somewhat as well, allowing the pair to extend the rally that began last week, and could continue, especially as crude seems to have hit a wall at the $50 level.
Cryptocurrencies
We continue to see signs of improvement, with all the major cryptocurrencies making substantial recoveries. Still, they are well off the highs of last week, and look to be starting to move sideways in consolidation. Also, volumes on the cryptocurrency exchanges are lower than normal, so it could take a few days before we begin to see another leg higher for Bitcoin and similar digital coins.
Commodities
Metals
The decline in risk aversion kept traders away from haven assets such as the precious metals. Gold and silver both ended the day at three week lows. As long as tensions between the U.S. and North Korea remain muted its likely traders will continue shying away from the precious metals, and gold could be testing $1,300 soon for support.
Oil
Crude ended flat on Monday as traders continue to weigh the impact of falling rig counts as reported last week, versus increased inventory levels due to hurricane Harvey related refinery shut-ins. The U.S. WTI contract is also pushing against resistance at $50, which is proving to be fairly resilient. There is some upside support for crude as OPEC seems to favor an extension of production caps currently in place.
Indices
S&P 500
The S&P500 rose to a new record high on Monday, with losses from the defensive, but small, real estate and utility sectors more than offset by a gain in excess of 1% from the financial sector. As risk appetite grows and investor confidence improves the financial sector is likely to see continued gains. Improving global economies should also serve to move the S&P to increasing heights in the coming weeks.
FTSE 100
London’s benchmark index gained for the first time in five sessions on Monday, with shares of industrial and oil-gas companies leading the way higher. A weaker Pound also helped boost equities, with the British currency falling against the USD after Bank of England governor Mark Carney told that interest rate hike is not on the table anytime soon in the U.K.
Stocks
General Electric (NYSE:GE)
In addition to being the oldest stock included in the Dow Industrials, General Electric is also the worst performing this year. In fact, it is suffering its worst under-performance against the industrial sector since 1991. In addition, GE is getting a new CEO, and he could go on a huge cost cutting spree, and increase efforts to improve shareholder value. While the stock could see another quarter of downside, the coming year could be an excellent one for the oldest component in the Dow.