Risk appetite started to slip again yesterday, with modest falls for Wall Street’s main markets as they re-opened for the first time since North Korea’s biggest nuclear missile test yet.
Major US markets had been closed during Monday’s global sell-off, so the S&P 500, Dow and Nasdaq were playing catch up as they dropped 0.2-0.3 per cent in opening deals.
Europe’s markets were being dragged back too, with stocks cutting their morning gains in half and investors shifting into bonds and the yen in fixed income and currency markets.
But as with many political risk plays over the past couple of years, the limited size of the moves suggest that investors were focused more on the upbeat picture of the global economy rather than on pricing in tail risks on every possible bad outcome.
Confirmation that euro zone business activity remained robust last month had helped the pan-European STOXX 600 claw back some of the ground lost on Monday amid international condemnation of the previous day’s nuclear test.
Gold – the traditional go-to for traders when political concerns escalate – eased too, dipping back from a one-year high in its first drop in four days.
Among the major currency pairs, the euro tiptoed back up to $1.19 as signs of rising inflation pressure in the earlier euro zone data put the focus back on tomorrow’s European Central Bank meeting and its plans to reduce its stimulus programme.
Cautious sounding comments from a Federal Reserve policymaker then knocked the dollar lower, taking it to a one-week low of 109.16 yen as US trading gained momentum.
Overnight China’s Caixin/Markit services purchasing managers’ index, a forward-looking economic indicator, rose to 52.7 in August, the highest reading in three months.
The market reaction to that was muted, however, with sentiment in Asian equity markets still subdued. Chinese bourses eked out small 0.2-0.3 per cent gains but Seoul and Tokyo remained red.
There were some sharp moves in commodity markets.
US WTI oil prices raced higher, while US gasoline prices slumped to pre-Hurricane Harvey levels, as oil refineries and pipelines in the US Gulf Coast slowly resumed activity, easing supply concerns.
US West Texas Intermediate (WTI) crude futures jumped 2.6 per cent to trade at $48.50 per barrel, and global benchmark Brent prices climbed 1.68 per cent to $53.18.
The reassuring China PMI data helped copper hit a three-year high in industrial metals markets, and nickel hovered near a 14-month peak.
Meanwhile, bitcoin dropped further from Saturday’s all-time high of $4,979.9 to trade at $4,012.