What you need to know:
- European and Asian stocks rally in sign of renewed risk appetite
- Dollar moves higher
- European bond yields edge up as focus returns to ECB policy
European equities opened higher and government bond yields edged up as markets rediscovered their appetite for risk, despite lingering concerns over North Korea’s missile launch yesterday.
Investors had rushed to safe assets on Tuesday after North Korea launched a ballistic missile which flew over Japan, but stock markets rose this morning on the back of a significant turnround in sentiment.
US President Donald Trump had responded to the launch by saying “all options are on the table”, which markets interpreted as a measured response.
Charlie Diebel, head of developed market rates at Aviva Investors, pointed to a “remarkable reassertion of risk appetite in the wake of the North Korea missile firing”.
“The safe haven flows prove ever more short lived and are consistently used as a buying opportunity for risk,” he said. “This highlights the degree of comfort markets have about [the] central bank policy remaining benign”.
Market participants pointed to key national German inflation data set to be released early this afternoon, which stand to provide the latest clues as to the direction of future monetary policy in Europe.
Questions over when major central banks will begin to reverse years of loose policy have dominated trading this year. “The notable absence of sustained inflationary pressures is the key metric keeping the ECB dovish,” said Mr Diebel.
Spanish inflation data beat expectations to show a rise of 2 per cent year on year in August.
The dollar index, which measures the greenback against a basket of currencies, was up 0.2 per cent in early trading, counteracting a recent bout of weakness. The euro weakened 0.1 per cent against the dollar to $1.1957, giving up some of its gains earlier in the week.
The Australian dollar extended its gains against the dollar after building approvals fell less than expected for July. It rose 0.2 per cent to $0.7964, having earlier in the session hit its highest level in four weeks.
The Japanese yen moved 0.3 per cent higher in early trading, in a sign of continued demand for haven assets, in spite of an ongoing recovery in risk appetite.
The German 10 year bund yield moved two basis points higher to 0.36 per cent, while Spanish yields edged up by a single basis point. US treasury yields moved up 0.2 basis points to trade at 2.1449 per cent.
Gold fell 0.2 per cent, moving further below the levels it reached yesterday. The yellow metal continues to hover close to a nine-month high.
US oil prices fell as refinery demand was hit in Texas, with West Texas Intermediate down 0.3 per cent to $46.28 a barrel while Brent was 0.1 per cent lower at $51.96 a barrel.