London — The dollar came off a two-and-a-half-year low and world stocks rose on Wednesday after the US’s measured response to North Korea’s missile test soothed jittery investors who turned their focus to positive economic data.
European stocks rose higher, tracking counterparts in Asia and the US and reversing losses from the day before when investors were spooked by Pyongyang’s firing of a ballistic missile over Japan.
Fears that this could trigger an aggressive response receded on Wednesday after the UN — in a statement drafted by the US — condemned North Korea’s latest missile launch but held back any threat of new sanctions.
US President Donald Trump, who has vowed not to let North Korea develop nuclear missiles that can hit the mainland US, said the world had received North Korea’s latest message “loud and clear”.
“Instead of the [US] president responding to the escalation via Twitter, as has happened on many recent occasions, the White House issued an official statement to condemn the action,” said IronFX analyst Charalambos Pissouros.
“This may have been interpreted by investors as a sign that the US will approach the situation in a more measured and diplomatic manner, as opposed to raining down ‘fire and fury’,” he said.
He was referring to Trump’s remarks earlier in August that he said he would respond with “fire and fury” if North Korea persisted in threatening his country.
North Korean media reports on the launch also lacked their usual claims of technical advances, indicating the test may not have succeeded as planned.
The dollar recovered from a four-month low, rising 0.2% against the Japanese yen and against a basket of currencies.
The recovery in the greenback had begun during Tuesday’s US trading session, with data showing US consumer confidence hitting a five-month high and house prices rising again.
“A series of strong economic data reminded traders and investors that the [Federal Reserve] is on course to shrinking its balance sheet and lifting rates again,” said Markus Allenspach, an analyst at Julius Baer.
The yield on US 10-year treasuries was back up to 2.13%, having sunk below 2.10% on Tuesday for the first time since the day after the 2016 presidential election.
In Europe, the pan-European STOXX 600 gained 0.6%, recovering nearly all the ground lost in the previous session and banking stocks — which had led the risk-averse move lower on Tuesday — were up nearly 1%. This followed gains in Asia: MSCI’s broadest index of Asia-Pacific shares outside Japan advanced 0.6% while Japan’s Nikkei rose 0.7%. Eurozone government bond yields, which fell to fresh lows on Tuesday, edged up on Wednesday as forecast-beating inflation in Spain was expected to be followed by similar data in Germany, defying the euro’s recent strength.
In commodities, petrol hit a two-year high after Hurricane Harvey shut down nearly 20% of US refining capacity, and more closures are expected.
US petrol futures rose 3.1% to $1.8392, bringing gains this week to more than 10%. The rise in crude inventories as a result of refinery shutdowns, however, weighed on oil prices.
US crude futures fell 0.6% to $46.17 a barrel, after touching a five-week low on Tuesday.
Global benchmark Brent slipped 0.6% to $51.67.
Spot gold edged marginally lower to $1,309.39/oz on Wednesday. On Tuesday, the precious metal jumped to its highest since Trump was elected US president.