LONDON – It's all change in financial markets at the start of the new week as concerns over a potential conflict between the United States and North Korea eased following an intervention by China.
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The mood in financial markets is far less febrile than last week, when an escalating war of words between U.S. President Donald Trump and North Korea had caused share prices to fall and gold to rise. Trump had declared that the U.S. military was "locked and loaded" while Pyongyang threatened to fire four missiles into waters near the U.S. territory of Guam.
But the new week has brought about a turn in fortunes, with stocks rallying and gold, a typical haven for investors in times of risk, sliding back down.
China's decision to slap further sanctions on North Korean products such as coal, iron ore and fish, has been interpreted as an attempt to bring the country into line over its nuclear and missile programs. China, isolated North Korea's main trading partner, had seemingly been reluctant to push leader Kim Jong Un too hard for fear his regime might collapse but its move to cut off imports points to a growing exasperation with Pyongyang.
Reassuring statements from U.S. CIA Director Mike Pompeo and Army Lt. Gen. H.R. McMaster, Trump's national security adviser that a conflict is avoidable also helped calm the mood.
"All is relatively calm, all is relatively quiet on the geopolitical front and long may that last," said Kit Juckes, a global strategist at Societe Generale. "Markets are, as a result, trying to get back to biz-as-usual."
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Wall Street was poised for a solid opening, with Dow futures and the broader S&P 500 futures both up 0.5 percent. In Europe, stock markets were making even bigger gains, with Germany's DAX up 1.1 percent at 12,148 and the CAC 40 in France 0.9 percent higher at 5,108. The FTSE 100 index of leading British shares was 0.6 percent higher at 7,351.
The turnaround in mood is further evidenced by the performance of those financial assets widely considered to be safe havens at times of geopolitical stress. Gold was down 0.6 percent at $1,287 an ounce while the Swiss franc also gave up a chunk of last week's gains. The dollar was back in demand, with the euro 0.3 percent lower at $1.1791. The dollar recovered some recent losses against the Japanese yen too, trading 0.5 percent higher at 109.54 yen.
Investors, though, will be keeping an eye on developments in North Korea, which on Tuesday celebrates Liberation Day, when the country marks the end of Japanese rule.
The reprieve in the markets, could be "short-lived," said Jane Foley, senior foreign exchange strategist at Rabobank International.
Elsewhere in markets on Monday, sentiment was boosted by figures showing Japan's economy grew by a stronger-than-anticipated 1 percent in the second quarter. That means the world's third-largest economy is experiencing its longest period of expansion in more than a decade. Though welcome, Japanese stocks fell sharply on Monday as investors played catch-up, returning from an extended holiday weekend to reflect broad declines in global markets last week. The Nikkei ended 1.0 percent lower at 19,537.10
In other Asia countries where Friday hadn't been a holiday, the mood was buoyant. Hong Kong's Hang Seng index jumped 1.4 percent to 27,250.23 and Australia's S&P ASX 200 surged 0.7 percent to 5,730.40. South Korea's Kospi gained 0.6 percent to 2,334.22 and the Shanghai Composite index advanced 0.9 percent to 3,237.36.