Risk appetite returns as North Korea holiday passes without drama

Safe havens under pressure as geopolitical risk ease a little; gold off its highs but remains elevated; UK data and the central bank in focus this week.

Risk appetite looks to have returned on Monday, with traders relieved at the inactivity in North Korea over the weekend after reports suggested the country could engage in more provocative testing.

The rogue state celebrated its 69th founding anniversary on Saturday and there had been speculation over the week leading up to it that further tests could be planned. Last year, the occasion was used to carry out its fifth nuclear test and given the ramp up in testing in recent months, it was feared the same would happen again.

Given the market response in recent weeks to such actions, traders were understandably cautious throughout the week but with the day having passed without drama, we’re seeing a move away from the safe havens. Strong gains in Asia overnight are looking to be replicated when the European week gets underway, with indices currently seen around 0.5% higher.

The traditional safe havens are coming under some pressure this morning, a partial unwinding of the sizeable flows seen in recent weeks. Gold has come off its highest levels in more than a year this morning, gapping lower on the open in a sign of relief for traders, but still remains at very elevated levels which are representative of the risk environment we still find ourselves in.

The yen is another safe haven that is seeing some of the recent flows unwound this morning. The dollar is trading back above 108 against the yen this morning, having fallen to its lowest in almost 10 months on Friday, not helped by the greenbacks own difficulties. A combination of political risk, a less hawkish Fed and more hawkish central banks elsewhere has driven the dollar to its lowest since the start of 2015 and the slide doesn’t appear to be easing up yet.

This week the UK will be primarily in focus, with the Bank of England monetary policy decision due on Thursday and coming after jobs and inflation data earlier in the week. Monday is looking a little quieter though, which barring any surprise events could offer some reprieve for markets.