- How long will the gradual return of risk appetite last?
- Yen lower even as Japanese GDP figures smash expectations;
- Gold lower after falling short at key resistance;
- USD stages rebound but dovish Fed continues to weigh.
Risk appetite is slowly returning to the markets on Monday, with no further escalation between the US and North Korea incentivising a gradual move back towards “riskier” assets.
I don’t think this signifies a belief that relations between the two countries will suddenly improve, it’s more a case of no news being good news and that will likely continue for as long as it lasts. The problem is that both sides can be rather unpredictable so things could escalate at any point and trigger another dash for safety. Gold, the yen and the Swiss franc may be coming off their highs at the moment but I’m not convinced it will last.
It seems this collective – and possibly temporary – sigh of relief that we’re seeing is once again overshadowing the economic news that we had overnight, with Japanese GDP figures smashing expectations while numbers from China – retail sales, industrial production and fixed asset investment – were less encouraging. The safe haven status of the yen appears to be driving today’s moves, rather than the data itself, with the currency down against its peers as traders unwind some of last week’s positions.
Gold is also coming off its highs, having come close to $1,300 on Friday – peaking just above $1,190 – before once again running into resistance and dropping more than half a percentage point today. Should tensions between the two countries ramp up once again, I’m not sure that $1,300 level will hold for long though, which would see it return to the levels last seen in the immediate aftermath of the US election when markets temporarily went into strong risk aversion mode.
The US dollar is staging a small recovery this morning, after suffering more losses on Friday in response to another uninspiring batch of inflation data for July. Markets are becoming increasingly doubtful that another rate hike will come this year, with December’s odds now down to 37%. This wasn’t helped by comments on Friday from Robert Kaplan – a voter on the FOMC who typically falls somewhere in the middle – which have been perceived as being rather dovish, with the central banker unconvinced on inflation and wanting to see more evidence of progress before hiking again.
While the start of the week is looking a little quiet, with no data of note to be released on Monday, things will pick up in the coming days with FOMC minutes, retail sales and consumer sentiment figures, among many others, due.
