Global markets are leaping higher on Monday. The Dow is up about 240 points or 1.18% as of 2:27 ET after the results of the first round of the French election came in as predicted, with centrist Emmanuel Macron edging out far-right candidate Marine Le Pen. The two will meet in a run off May 7.
But Art Cashin, the legendary New York Stock Exchange floor trader and director of floor operations for UBS, noted on CNBC that markets may be missing two big risks.
First, Tuesday marks the 85th anniversary of the founding of the Korean People’s Army in North Korea. It has been reported that the North Koreans may use the celebration to test a nuclear weapon or missile system.
Tensions between the US and North Korea have not been higher since the Korean War. In the last few days American and Japanese Naval vessels have assembled off the Korean coast and North Korea has threatened to sink an American aircraft carrier if the US provokes Pyongyang.
An outbreak of armed conflict between the US and North Korea would certainly send shivers through global financial markets.
Additionally, the deadline for Congress to fund US federal agencies is this Friday, April 28, and there remains a possibility that negotiations could fail, leading to a potentially damaging government shutdown.
Currently, one of the most heated budget items is funding for President Trump’s proposed wall along the US-Mexico border.
It looks like a stand off is brewing, pitting the White House and many southeastern and midwestern Republicans against the Democrats and border-state Republicans who do not want to “build the wall.”
Compass Point Research & Trading said it put 20% odds on a government shutdown at the end of the week.
“The average return of the S&P 500 during government shutdowns has been -0.6%, but our sense is that a government shutdown at this juncture could be materially worse as markets would be forced to discount expectations regarding both the scale and scope of President Trump’s legislative agenda,” it said.
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