Europe
European equities enjoyed a massive bounce back today, as the political situation between the US and North Korea appears to be improving. The standoff is far from over, but traders are taking their cues from Washington DC which is hoping to pursue a political end to the tense situation. We heard over the weekend the US isn’t interested in regime change when it comes to North Korea, and investors are bargain hunting on the back of this
Mining companies like Glencore (LON:GLEN), Anglo American (LON:AAL), Rio Tinto (LON:RIO) and BHP Billiton (LON:BLT) are some of the biggest gainers on the FTSE 100 today even though China’s data overnight failed to impress investors. The industrial production, retail sales and fixed asset investment figures from China showed the economy is growing at a slower rate than economists expected.
Beijing has a history of assisting the economy whenever it slows too much, so traders might be buying basis resource stocks on the assumption the Chinese government will intervene to ensure the annual growth target is achieved.
US
US stocks have extended the gains that were made on Friday. The tensions between the US and North Korea appear to have pulled back from boiling point, and some of the fear surrounding the situation has evaporated. The volatility index (VIX), often referred to as the fear index is down 16% today, and that tells you everything you need to know.
While the war of the words has cooled-off, traders are using the ceasefire as an opportunity to pick up relatively cheap stocks
The rapid escalation of tension between the two counties last week caught traders by surprise, and the knee-jerk reaction was to exit their position in equities.
The dust has settled somewhat, and seeing as the US is talking more along political lines rather than military action, traders took this as a positive sign.
FX
The EUR/USD drifted lower after the eurozone revealed that industrial production in June on a year-on-year basis was 2.6%, while traders were expecting 2.8% and the previous report was 3.9%. The slowdown in the growth rate could be an indication the relatively strong euro is hampering growth in the region.
The single currency has moved higher versus the US dollar this year as the turnaround in the eurozone sparked speculation the European Central Bank will look to reduce the size of its bond buying scheme. The upward trend in the EUR/USD is still intact.
The GBP/USD was pushed lower by the general strength in the greenback. There was not much volatility in the currency markets today, but the decline in fear surrounding the standoff between North Korea and the US has helped the US dollar pick up.
Traders have had time to fully digest Friday’s inflation report from the US, and the slight tick higher in CPI has stood to the US dollar today. Inflation in the US may be below the Federal Reserves’ target but at least it is heading in the right direction.
Commodities
Gold has turned lower today as investors adopt a more risk-on attitude. The metal was given a major boost last week because of the sell-off in global stocks, and now we are seeing funds flow the other way.
The metal has been gaining ground for the past month and a correction was overdue, and the surge in equities is the perfect excuse to book profits. We may see a continuation of the upward trend in gold and the 2017 high of $1296 will been keenly watched by the bulls.
WTI and Brent Crude oil started off the day on a weak note, but have rallied since. China’s latest industrial production and fixed asset investment numbers showed a slower rate of growth and came in below expectations. This adds to the concerns that demand for energy isn’t particularly strong. All the while, the fear about a global supply-glut still persist.
The Baker Hughes report at the end of last week showed the number of active rigs in the US increased by 3 to 768 active rigs. Worries about over-supply and weak demand is a dangerous combination for oil.
"DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. "