Futures lower as North Korea tensions linger

Paterniano Del Favero
Agosto 13, 2017

Weaker-than-expected consumer price data for last month led investors to bet that benign inflation would keep the US Federal Reserve from raising rates again this year.

The New York stock Exchange showed Friday, a slight resurgence of optimism even if the situation is diplomatic does not improve much between the two countries.

While the data gave investors appetite for growth sectors such as information technology and biotechnology it soured them to rate-sensitive stocks such as banks, said Keith Lerner, Chief Market Strategist, SunTrust Advisory services in Atlanta.

Brokers estimate that 40 % probability of a rate increase in December, according to the contracts stock futures on the federal funds.

Amid the hot rhetoric, US stocks sold off sharply on Thursday, with the S&P 500 falling more than 1 percent.

"There's not a great incentive to buy big". BNY Mellon FX strategist Neil Mellor told Reuters that in recent years, "the market hasn't really reacted to things on the Korean Peninsula" because in the past "it [has been] largely North Korean sabre-rattling".

The Dow Jones Industrial Average rose 14.31 points, or 0.07 per cent, to end at 21,858.32, the S&P 500 gained 3.11 points, or 0.13 per cent, to 2,441.32 and the Nasdaq Composite added 39.68 points, or 0.64 per cent, to 6,256.56.

The CBOE Volatility Index, better known as the VIX and the most widely followed barometer of expected near-term stock market volatility, rose the most in about 12 weeks.The index ended up 4.93 points at 16.04, the highest level since November 8, when Trump was elected president.

Wall Street's fear gauge - the CBOE Volatility Index or the VIX - surged 44%, its second-biggest one-day jump of the year.

South Korea's KOSPI fell 1.7 per cent on Friday to its lowest since May 24, but its losses for the week were a relatively modest 3.2 per cent.

A Reuters Datastream index of more than 7,000 stocks across the globe saw its market capitalisation drop from a record high US$61.36 trillion on Monday to US$60.43 trillion at the close on Thursday.

"While it appears that Pyongyang's detailed strike plan against Guam has created a sour backdrop to trading, it's worth noting that US/North Korea tensions aren't having quite the same effect on the DAX and CAC", said Spreadex analyst Connor Campbell.

The yen on Friday added to a strong weekly rally against the dollar of close to 1.5 percent, hitting its highest versus the greenback in nearly four months, at 108.73 yen.

Investors have also headed to other traditional havens, such as the Swiss franc and the Japanese yen.

The Dow Jones industrial average closed up 14 points, a gain of 0.07 percent, the Nasdaq composite rose almost 40 points or 0.64 percent and the S&P 500 gained 3 points or 0.13 percent.

"From a geopolitical perspective, we understand why the escalation in tensions will have shaken some of the complacency out of investors", said Eric Wiegand, senior portfolio manager at U.S. Bank Private Client Wealth Management.

The data comes amid tepid inflation that has remained below the Fed's 2% target, despite low unemployment.

The dollar index fell 0.3 percent, with the euro up 0.36 percent to $1.1812.

London's FTSE 100 dipped by about 90 points, or more than 1%, in morning trading on Friday, adding to a slump of more than 100 points the day before and taking it to its lowest level since May.

And in a textbook-type cross-asset move toward safety in times of trouble, the Japanese yen hit an eight-week high against the US dollar while spot gold also reached a two-month high. Its weekly gain of 2.6 percent is the largest since June 2016.

Ongoing global glut concerns lingered in oil markets despite a bigger-than-expected draw in US crude inventories.

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