Asian markets rebounded solidly on Monday as the lack of any activity in North Korea over the weekend helped melt risk sentiment from investor’s thoughts. North Korea had been expected to conduct a weapons test over the weekend to commemorate its founding day, but the lack of any activity gave investors confidence to move back into equities. The USD rallied as well, helping lift exporter shares in Japan, but the financial sector was the broad based winner across the entire region.
European markets staged their strongest daily gains in four weeks as fears over geopolitical risks from North Korea receded, and hurricane Irma was less devastating to the U.S. then was feared. Shares of insurers led the charge higher as investors were relieved by the downgraded status of Irma as the economic damage of the hurricane is projected to be far less than it could have been. Export companies also did well thanks to a pullback in the Euro, which makes the exporters more competitive abroad. In the U.K., the FTSE was also solidly higher, although gains were muted somewhat as the U.K. Parliament was debating the Brexit bill on Monday and is expected to vote on the bill which pulls the U.K. out of the EU by early Tuesday.
U.S. markets rallied strongly as investors relieved over the minimal damage from hurricane Irma, and lack of geopolitical risks from North Korea. The relief rally took the Dow back above 22,000, and all three of the major indices posted gains in excess of 1%. The S&P 500 closed at a new record high, the 31st time in 2017, and the first time since August 7th. The strongest gains came from the heavily weighted financial and technology sectors, but gains were broad based and all eleven of the S&P sectors ended the day in positive territory.
After drawing a shooting star last Friday the pair respected that formation and headed lower on Monday, trading back down through 1.2000. There was a similar setup on August 28th which saw a pullback, slight bounce and further pullback. The same pattern could repeat itself here as the setup looks quite similar. Fundamentals may intervene however, as the U.K. Parliament votes on the Brexit bill late Monday or early Tuesday.
The pair traded briefly above 1.3200, but found too much resistance there, especially as traders turned increasingly cautious ahead of the Brexit bill vote, and the inflation data due to be released early Tuesday morning. The pair sees support from 1.3150 down to 1.3100 and that could make a further pullback difficult, barring any surprises from Parliament or economic data.
After selling off over the weekend most major cryptocurrencies remained depressed on Monday. Bitcoin dropped to $4,000 over the weekend, and has since recovered modestly to trade right around $4,150 for most of Monday. Other major coins are following Bitcoin, and trade below resistance levels, showing little upward momentum.
Precious metals retreated on Monday as investor confidence and risk appetite returned to markets, dulling the demand for safe haven assets such as gold. Nevertheless, gold remains near a one-year high, and with additional sanctions against North Korea looming, geopolitical risk could surge higher at any time, giving the precious metals another boost.
Crude moved higher Monday, although traders were still assessing the recovery from hurricane Harvey, and the potential impact of hurricane Irma. The spread between WTI crude and Brent crude narrowed during the session as U.S. refineries continue to come back online. That spread should continue to contract in the coming days and weeks. One positive development came from OPEC, where Saudi Arabia said their energy minister and his Venezuelan counterpart discussed the possibility of extending production cuts beyond the March 2018.
A strong rally in technology led the NASDAQ higher on Monday. The rally came as a result of returning risk appetite from investors, sending them into the technology shares that are often considered most risky.
Germany’s DAX tacked on 1.4% Monday as shares of export companies were helped by a falling Euro. The financial sector also performed well with a rise in Bund yields, as investors sold the assets ahead of Wednesday’s release of August CPI data in Germany. Expectations are that German inflation ticked higher in August, which could spark another rally in the Euro.
Shares of Teva soared 16.6% higher on Monday after the company named a new CEO, turnaround artist Kare Schultz, who has more than 30 years of experience in the pharmaceutical industry, and a strong track record in restructuring activities. They expect Mr. Schultz to drive growth for Teva, and the appointment should put a floor under the stock price, which has been under pressure for nearly two years.