Europe
The lack of hostilities in relation to North Korea and the downgrading of Hurricane Irma to a category one storm has prompted traders to buy back into the market.
North Korea celebrated the founding of the state over the weekend, and investors were worried the event could have prompted Pyongyang to mark the occasion by testing a missile. Seeing as the North Korean regime didn’t show off its military might over the weekend, traders were encouraged to take on more risk.
The timing of Hurricane Irma wasn’t great seeing as it quickly followed the tropical storm Harvey. Irma was downgraded to a tropical storm, and even though it has caused a considerable amount of destruction, it hasn’t been as bad the markets were expecting. This also added to the bullish sentiment today, since the cost of the clean-up will be less than expected.
Carillion (LON:CLLN) has suffered another blow, as Zafar Khan, the finance director, left with immediate effect. The company issued a profit warning in July, which triggered a collapse in the share price. Even though Mr Khan is being replaced by Emma Mercer, the finance director of the construction division, the share price is down 2.1% today.
Insurers like Aviva (LON:AV), Prudential (LON:PRU) and Legal & General (LON:LGEN) are all higher today as the payouts relating to Irma are likely to be below initial estimates.
US
The Dow Jones, S&P 500 and Nasdaq 100 are all higher today as Hurricane Irma hasn’t been as bad a dealers predicted. Going into the weekend, traders were on tenterhooks ahead of Hurricane Irma.
The US and the Caribbean have been battered by Irma, but it hasn’t been as bad as investors were expecting, so we are seeing a bounce back in stocks today. Irma was downgraded from a category five hurricane to a tropical storm, and this has brought the buyers out of the woodwork.
The feel good factor that Irma wasn’t as harsh as the market was pricing in last week has prompted a fresh round of buying, and the S&P 500 and NASDAQ 100 are not a million miles from their respective all-time highs.
FX
EUR/USD is in decline today after European Central Bank (ECB) member Benoit Coeure stated the rally in the single currency could curtail inflation. Traders took this as sign that Mr Coeure would prefer to keep the monetary policy loose, and in turn sold the euro.
In July, Italian industrial production increased by 4.4% - on a year-on-year basis, and that compared with 5.3% growth for the same period last year. Economists were expecting a reading of 3.8%, so it was comfortably exceeded. The data couldn’t stop the sell-off in the single currency.
The GBP/USD is broadly unchanged today as there no major economic announcements from the UK or US today. It is encouraging to see that the pound has held its ground versus the greenback, while we have seen a lot of currencies soften against the US dollar.
Traders are looking ahead to the British inflation data tomorrow. UK CPI is expected to tick up from 2.6% tick to 2.8% on a yearly basis, and swing from -0.1% to 0.5% on a monthly basis.
Commodities
Gold has handed back of some of last week’s gains as traders adopt a more risk-on strategy, and dealers are dumping the safe-haven asset in favour of riskier assets like stocks.
The bounce back in the US dollar is also putting pressure on the metal. Despite today’s negative move, it still remains in the upward trend that it has been in since July.
Brent crude and WTI are lower on the day as traders assess the fallout from Irma. The knock-on impact will be reduced economic activity, and in turn traders are concerned it may lead to reduced demand for oil.
Last week we saw jump in US jobless claims on the back of tropical storm Harvey, and we could see that replicated this week because of Irma.
Despite the adverse weather, the Baker Hughes rig count report showed an increase of 1 to 944 last week.
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