With the US out on holiday for the 4th of July, overnight trading volumes have been muted, as Europe started off in the red but has since trimmed most losses (Stoxx 600 -0.1%) while S&P 500 futures rose sharply from session lows spurred by the European open ignoring the risk-off sentiment from North Korea’s latest missile launch, trading 0.2% higher, or up 4 points to 2,429 and closing the gap to Monday’s last-minute tech-driven market selloff.
For those pressed for time, today’s 60-second market wrap comes from Citi, which titles it appropriately enough, “Cause baby you’re a firework”
Those celebrating Independence Day today will no doubt have hoped that it wouldn’t have resembled the eponymous movie quite so vividly – Fireworks are to be expected on July 4; Intercontinental Ballistic Missiles are undoubtedly overkill. As London walked in, North Korea was releasing a statement to crow over its most successful missile launch to-date: An ICBM was fired which flew for a record time/altitude for the rogue state. The move is highly provocative and it is difficult to imagine that the date chosen was in any way coincidental (NK did the same in 2006 and 2009). The inevitable risk-off reaction in markets in Asian hours was prompt but limited – the enormity of this latest crisis is, as yet, difficult to gauge.
Along with some small follow-through from the initial risk-off move, today has been dominated by G10 central bank events. Both the RBA and the Riksbank neglected to join the ever-growing ranks of hawkish central banks – hope now rests with the BoC next week (July 12) after an encouragingly hawkish interview with Governor Poloz was published this morning. The BoE’s MPC is quite clearly of two minds at the moment: Vlieghe unsurprisingly reiterated his dovish stance in a UK newspaper, and placed his own emphasis on consumption data (in contrast to Haldane last week, who pointed towards wages), while McCafferty explained, in a separate interview, why he voted for a hike in June.
Back to the action, USD/JPY has retraced the early selloff as central bank trading teams walked to their desks. Bund futures open higher, following USTs before settling in a tight range as curves steepen marginally. European equity markets trim opening losses, led by insurers and banks. Thin trading likely into European afternoon as U.S. cash Treasury and equity markets shut for holiday
Speaking of tech, the Nasdaq “glitch” that froze the prices of an unknown number of companies at 123.47 continues, appears to have been partially resolved.
Overnight, there were two central bank announcements, with both Australia’s RBA and the Swedish Riksbank keeping rates on hold as expected, at 1.5% and -0.5%, respectively, also investors were disappointed as Australia’s central bank failed to join global counterparts in talking up policy tightening after warning that a “rising AUD complicated the economic adjustment.” EUR/SEK traded sharply higher despite the Riksbank removing its easing bias as policy makers leave rest of the repo rate path unchanged.
Markets initially reflected a risk-off reaction to the North Korean ICBM announcement, with UST futures and JPY rallying before gradually reversing through European morning. Asian shares turned lower on Tuesday as earlier gains were quashed by tensions on the Korean peninsula after the latest North Korean launch which landed in Japanese waters, deepening concerns over the isolated nation’s nuclear capabilities. North Korea claimed the missile was its first ICBM ever tested, and as a result, Australian sovereign bonds caught a bid while the Korean won dropped to the lowest in almost four months. The Bloomberg Dollar Spot Index rose modestly by 0.1%, after jumping 0.5% in the previous session. The dollar strengthened the most in two weeks after a short covering squeeze on Monday, prompted by a paradoxical surge in the manufacturing ISM even as the Manufacturing PMI tumbled to the lowest level since last summer.
Early market optimism sparked by bullish U.S. economic data faded and the yen strengthened as gold was headed for its first gain in four days. European stocks slipped led by telecom and technology shares, while oil also stalled after OPEC production increased. The Australian dollar slumped as the nation’s central bank left rates unchanged.
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