Risk appetite returns

Strong overnight leads are in for Asian markets into the second day of the week as jitters receded shortly after the Italian referendum result was announced.

Source: Bloomberg

The markets appear to have come to the realisation that the concerns paid to the Italian referendum may be too much or too early. The real concern would be the next Italian general election in 2018.

This is one election that could risk the establishment of the Eurosceptic Five Star Movement party as the country's ruling party, potentially hurting markets. ‘Relief rally’ has become the favourite description for the overnight trend seen in both European and US stock markets as traders tuned back to riskier assets.

As expected, the reversal into riskier assets have left gold out cold. Prices dipped, at one point, to a ten-month low of $1157.26, stopping short of longer-term trend line supports. Gold prices had since reversed to trade on either side of $1170.0 with the pressure on the US dollar providing some support as well.

Ahead of the Fed FOMC meeting next week, gold prices have been expected to remain subdued as the market continue to unwind their holdings of this precious metal. The forward-looking market participants will also look to the Fed’s economic projection, to be released alongside the Fed’s interest rate decision, in making a judgement on their holdings. An optimistic economic outlook could take a further hit on the safe havens including gold.

Looking at the leads, the S&P 500 closed Monday up 0.58% trading back above 2200.0 and was led by the financial sector. Notably, the IT sector trailed closely at 1.0%, retracing some losses after last week’s 2.92% decline. Even crude oil prices rose, as seen with WTI futures briefly crossing the $52.00 per barrel mark before falling back to the $51.00 per barrel level.

Asian markets are highly likely to chow down on this optimism that could trickle east. This is despite the twitter storm witnessed yesterday. While President-elect Donald Trump’s call with Taiwan’s President Tsai Ing-wen left political observers scratching their heads, the messages sent by him on a platform inaccessible in China were still able to trigger concerns. As most analysts would reckon, a trade war between the two giants would only do more harm than good.

Today’s strong leads could nevertheless help to overshadow these concerns. Early movers including the Nikkei 225 and KOSPI have already rode on the wave of optimism, clocking more than 1.0% gains when last checked (00:45GMT).


Yesterday: S&P 500 +0.58%; DJIA +0.24%; DAX +1.63%; FTSE +0.24%

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