It’s been a bright start to trading in Asia and Europe on Monday and the U.S. is currently on course to follow suit, three major indices have been seen opening more than half a percentage point higher.
Investors understandably adopted a far more cautious approach last week, with tension having already been ramped up by North Korea’s hydrogen bomb test the weekend before and speculation that another test could follow on Saturday, the anniversary of its founding day. Fortunately, this never materialized, with Kim Jong Un instead using the celebration to recognize the previous weekend’s achievements, allowing investors the opportunity to unwind some of the safe haven trades from the days before.
Indices, which have been in consolidation over the last month or so, are now expected to enjoy a mini relief rally although we should get an interesting insight into just how much investors perceive the threat of an escalation to have subsided. The S&P 500 is still expected to open around 20 points or so from its highs and should it overcome them in the coming days, it would suggest optimism is returning.
Of course, this is aided by other events having either played out better than expected or not deteriorated further. With Hurricane Irma now downgraded to category one, there is hope that the devastation that has already been caused will not end up as bad as feared, potentially bringing down the eventual bill. The debt ceiling can be kicked down the road a few months is also providing temporary relief but as always with this kind of thing, the problem has only been delayed rather than resolved. All these issues have also taken the spotlight off Donald Trump, following what was a rough couple of weeks for the President and a period that was a concern for investors.
All of this has seen safe haven assets come off their highs, with gold having previously rallied to a level not seen since August last year. While the yellow metal did actually end lower on Friday after having rallied well earlier in the session and has opened lower today, it remains at elevated levels which is perhaps representative of the lingering unease and expectation that confidence could evaporate quite quickly once again.
While Monday is looking quiet as far as scheduled economic events is concerned, there is a scattering of notable economic data throughout the week, with a particular focus on the UK as we get inflation and jobs numbers as well as the Bank of England monetary policy decision. We’ll also get August inflation data for the U.S. on Thursday, which comes as Federal Reserve policy makers become increasingly concerned about its lack of movement towards the target.