Global stocks bounce, havens drop as Korea fears abate

New York: Stocks in around the world advanced and volatility gauges fell as the prospect of war between the US and North Korea appeared to recede. Havens including gold, Treasuries and the yen fell.

US stock opened higher, with the S&P 500 Index and Dow Jones Industrial Average higher. The Chicago Board Options Exchange Volatility Index fell below 13 after topping 16 on Aug. 10. The Stoxx Europe 600 Index headed for 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 the rich valuations on display across multiple assets, many of which had barely corrected this year. But 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 US 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.

Economy

The Japanese data was interpreted by some as another sign that the global economy is indeed on the mend, with possible consequences for central banks’ easy-credit policies.

While Japan is not expected to dismantle its stimulus programme any time soon, analysts reckon that signs of global recovery gives Eurozone and US central banks a reason to start rolling back some of their asset purchases.

The data helped push US 10-year yields higher from Friday’s six-week lows, touched after showing that US

consumer prices rose just 0.1 per cent last month, below economists’ forecast of a 0.2 per cent gain.

The yield on Germany’s 10-year government bond, the benchmark for the Eurozone, was up 3.8 bps to 0.42 per cent, a move mirrored by most other Eurozone debt.

The yield had hit the lowest since end-June on Friday.

“The question becomes how Japanese growth could impact the very expansionary stance of central banks,” said Daniel Lenz, a strategist at DZ Bank.

Markets could glean some clues on that from minutes of the latest US Federal Reserve and the European Central Bank meetings, due on Wednesday and Thursday respectively.

Earlier in the day, Chinese markets were largely unfazed by a slew of activity data which was softer than forecast, though still largely solid.

The world’s second-largest economy had been widely expected to lose some steam after a surprisingly strong first half of 2017. But economists do not expect a hard landing, with the government keen to ensure stability ahead of a Communist Party leadership reshuffle in the autumn.