Markets are unwinding risk-off safety trades that saw gold climb to almost a one-year high and the 10-year Treasury yield threaten to dip below 2 percent as North Korea celebrated its Day of the Foundation without launching a missile, Prudential’s Chief Market Strategist Quincy Krosby said Monday in her weekly “Connecting the Dots” outlook. Also, Hurricane Irma was less destructive than forecast.
Fears persisted that the fiery rhetoric from North Korea a week ago meant that there would be a missile test this weekend during the holiday when the country traditionally showcases its military power. Instead, the only provocative action came from the country’s ambassador to the United Nations, who threatened the U.S. for spearheading a call for new economic sanctions after North Korea’s Sept. 3 nuclear test.
“It was a massive display of military hardware, but nothing happened,” Krosby said. “The threat is perceived to have eased—for now.”
Further, while the damage from Hurricane Irma was extremely severe in the areas that it hit, the affected area was less extensive than anticipated. Forecasts that the storm would devastate much of Florida proved incorrect.
Another positive sign was President Donald Trump reaching a bipartisan agreement with Democratic Party leaders Nancy Pelosi and Chuck Schumer to suspend the debt ceiling three months, she said. While the market was pleased with the deal, questions remain whether an agreement on tax reform or tax cuts can be reached this legislative session.
“The markets’ job is to look ahead, and that is what it is doing this morning,” she said.
Meanwhile, Apple is set to launch another iPhone Tuesday, and investors clearly want to be wowed with something truly new and groundbreaking, Krosby said. Given Apple’s index weighting and prominence, it is important that the new product delivers.
In data releases this week, notable ones include the small business optimism index and the job openings and labor turnover indexes on Tuesday; the producer price index on Wednesday, and retail sales and the Empire State Manufacturing Index on Friday, she said. Also, Friday is one of the four quadruple-witching days of the year, when four separate sets of options expire. That can bring an increase in trading volume and possibly increased volatility.
The views and opinions are those of the author at the time of publication and are subject to change at any time due to market or economic conditions. This is solely for informational purposes. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.