Once again investors started the week on the back foot as geopolitical tensions escalate over the week-end. With the exception of Chinese equities, which enjoyed a smooth session on Monday, global equities slid in negative territory. The Nikkei was off 0.93%, while the broader Topix index fell 0.99%. European equities followed Japanese ones lower. The Euro Stoxx 50 was down 0.50%, while S&P 500 futures tumbled 0.47%.
North Korea announced it conducted sixth nuclear test on Sunday, triggering another rush for safe haven investments. As usual gold, the Swiss franc and the Japanese yen were better bid, rising 1%, 0.80% and 0.75% respectively. Other precious metals were also in demand with silver climbing 0.80% and palladium rising 0.90%.
Volatility indexes such as the Euro Stoxx volatility index gapped at opening, jumping from 14.7% on Friday to 16.4% on Monday morning. Demand for bonds also surged sending rates lower. German Bunds yields continued to move lower with the 10-year sliding to 0.36%, while on the short-end of the curve the 2-yeat yield reached -0.73%.
EUR/USD edged up in early European session and erased partially Friday’s losses. The single currency rose to $1.1915. The pair is still trading within its multi-month range of 1.1662-1.2070. We do not expect a significant change of behaviour before Thursday’s ECB meeting.
By Arnaud Masset