The Wrath of Nature and North Korea Sends Markets into a Tizzy

August 29, 2017

So much for North Korean restraint in the face of Trump’s threat of “fire and fury” against that regime. North Korea fired a missile last night that sailed over Japan, seemingly calling the U.S. president’s bluff to prove how tough he can be. Meanwhile, Harvey continues to batter the Texas coast and is forecast to possibly become the worst recorded storm to hit North America just months after the United States pulled out of the Paris Accord to contain climate change.

There’s been a stampede out of risky assets in response. Gold climbed to an 11-month high, gaining 0.9% to $1,326.8 per ounce, and the dollar is broadly lower, posting its largest declines against traditional safe havens like the Swiss franc (1.1%) and Japanese yen (0.7%). The greenback also fell 0.6% against the euro, which moved past $1.2000, 0.4% relative to the kiwi, 0.3% versus the yuan, 0.2% vis-a-vis the loonie but just 0.1% against the peso, Australian dollar and sterling. Fears of a Korean war sent to won lower.

Money is flowing into fixed income government securities. The 10-year treasury yield is down 5 basis points to 2.11%, an 10-month low, and its British, German and French counterparts dropped by 5, 4 and 4 basis points. The 10-year Japanese JGB yield slipped below zero.

Equities in Europe have fallen 1.8% in Greece, 1.7% in Germany, 1.6% in Italy, 1.3% in France, 1.1% in the U.K., 1.0% in Spain and 0.9% in Switzerland. Stocks closed down 1.2% in New Zealand, 1.1% in India, 0.7% in Australia, 0.6% in Singapore and 0.5% in Japan but up 0.1% in China and Hong Kong.

WTI crude oil edged up 0.1% to $46.60 per barrel. Flooding in the gulf coast will likely impede supply.

Japanese labor statistics for July were strong. The jobless rate stayed under 3% at 2.8% for the third time in four months. Employment was 0.9% higher than a year earlier, and the job offers-to-seekers ratio continued to grind higher. In a separate report, however, real household consumption fell 1.9% on month in July and posted a 0.2% on-year decline despite a 3.5% on-year advance in real income.

French real GDP climbed 0.5% in 2Q for the third quarter in a rose and accelerated to an on-year advance of 1.7% from 1.1% in 1Q, 1.2% in 4Q16 and 0.9% last summer. Personal consumption recorded on-year growth of 2.1% in both 2Q and July, up from 0.5% in 1Q. The quarterly rise in GDP would have been twice as high as reported if not for a 0.5 percentage point drag from inventories in 2Q.

German consumer confidence edged up 0.1 point to a new 2017 high of 10.9 in September according to the GFK measure and was 1.0 point greater than in January.

The British Nationwide house price index dipped 0.1% on month in August, cutting its on-year advance to 2.1% from 2.9% in July, 3.1% in June and 4.5% last February. The result was weaker than analysts were anticipating and evidence of the lack of wisdom of voters supporting Brexit.

Australian new home sales fell 3.7% on month in July on top of a 6.9% plunge in June.

The forward-looking element of South Korean business sentiment improved this month, but the data were collected when it appeared that North Korean hostile provocations had entered a lull.

In the year to July, retail sales rose by a similar 3.9% in Portugal and 4.0% in Hong Kong.

Turkey’s $8.84 billion trade deficit in July was much greater than the deficits of $4.85 billion a year earlier and $6.04 billion in June. This, in part, reflects the J-curve effect of a depreciating exchange rate.

The U.S. Case-Shiller house price index and Conference Board index of U.S. leading economic indicators get released today. The Bank of Israel is holding a monetary policy review.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.





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