Stocks Surge, Havens Retreat as Korea Fears Wane: Markets Wrap

  • U.S. officials say nuclear war with North Korea isn’t imminent
  • Volatility drops; Treasuries, gold and the yen all pull back

Quad Group's Borish Says Markets May Be 'Dicey' in Fall

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Stocks gained and volatility receded as the prospect of war between the U.S. and North Korea cooled. Havens such as gold, Treasuries and the yen fell. Oil retreated.

U.S. shares were broadly higher, with the S&P 500 Index gaining the most since April and the Dow Jones Industrial Average and Nasdaq Composite Index also rising. Volatility retreated, as the CBOE Volatility Index, or VIX, fell below 12.5 after topping 16 on Aug. 10.

The Stoxx Europe 600 Index posted its first gain in four days, tracking increases across markets including South Korea, Australia and Hong Kong. Most European government bonds followed Treasuries lower. Bitcoin posted yet another surge.

Volatility gauges jumped last week and risk assets tumbled as the sudden increase in tension around the Korean peninsula jolted markets globally. The reaction was exacerbated by rich valuations in numerous asset classes, many of which had barely corrected this year. White House officials sought to calm the crisis on Sunday by assuring that war was not about to break out, and media attention shifted to strife within the U.S. following the violent white-supremacist rally in Charlottesville, Virginia, over the weekend.

Meanwhile, there was a mixed bag of data out of Asia on Monday. Japan’s second-quarter growth topped estimates, reflecting better domestic demand. China’s economy posted its worst showing this year as curbs on property, excess borrowing and industrial overcapacity began to have an impact.

Terminal subscribers can read more on our Markets Live blog.

Here are the big events to watch this week:

  • A crowded U.S. data docket will give some indication of whether second-half GDP will outperform the first half. July retail sales are expected to rise from June, while housing starts and industrial production may be muted. 
  • On Wednesday, the Federal Open Market Committee will issue minutes from a July policy meeting that may hold clues to the Federal Reserve’s next rate hike. The same day, Euro-area second-quarter GDP data is due.
  • Chinese tech titans Tencent Holdings Ltd. and Alibaba Group Holding Ltd. are among the companies reporting results this week. After rising 76 percent in 2017, Alibaba shares trade at a multiple of 65 times earnings. Tencent is trading at 56 times profits after a 71 percent jump.
  • Russia’s factory output growth probably dipped to 3.3% in July year-on-year from 3.5% in June. The data is due in the early part of the week.

And here are the main moves in markets:

Stocks

  • The S&P 500 finished up 1 percent. The Dow added 0.6 percent, while the Nasdaq Composite rose 1.3 percent.
  • The Stoxx Europe 600 climbed 1.1 percent.
  • The U.K.’s FTSE 100 Index gained 0.6 percent. 
  • Germany’s DAX Index advanced 1.3 percent, its biggest rally in a month. 
  • The MSCI All-Country World Index increased 0.7 percent. 

Currencies

  • The Bloomberg Dollar Spot Index gained 0.3 percent. 
  • The euro dipped 0.3 percent to $1.1786. 
  • The British pound fell 0.4 percent to $1.2967.
  • The Japanese yen slid 0.4 percent to 109.66 per dollar, the first retreat in a week.

Bonds

  • The yield on 10-year Treasuries increased three basis points to 2.22 percent. 
  • Britain’s 10-year yield gained one basis point to 1.07 percent. 
  • Germany’s 10-year yield rose two basis points to 0.41 percent.

Commodities

  • West Texas Intermediate crude plunged 2.8 percent to $47.47 a barrel. 
  • Gold dipped 0.6 percent to $1,282.14 an ounce, its first retreat in a week.

Asia

  • Japan’s Topix index finished 1.1 percent lower.
  • South Korea’s Kospi index advanced 0.6 percent.
  • Australia’s S&P/ASX 200 index rose 0.7 percent.
  • The Shanghai Composite Index added 0.9 percent, while in Hong Kong the Hang Seng Index gained 1.4 percent.

— With assistance by Adam Haigh, and Samuel Potter

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