Europe
European equity markets sold off heavily after North Korea launched a missile over Japan last night, and that rattled investor’s already weary nerves. The standoff between the US and North Korea never went away, and as of last night it is back in the forefront of traders’ minds. Tensions have shifted up a gear, and dealers are dumping stocks as they don’t want to remain long while the political situation plays out.
The DAX, CAC 40 and IBEX 35 are under extra pressure as the strength of the euro is playing into the sell-off also. The single currency is soaring against the US dollar and the pound, and it is speeding up the decline in the eurozone indices.
In London, Randgold Resources (LON:RRS) and Fresnillo (LON:FRES) are in high demand as the underlying gold and silver markets were jolted higher by the risk-off attitude of traders. The two metals are deemed to be safe-haven assets and have a history of performing well in turbulent times, and today is no different.
US
US indices are down on the day as there are a raft of reasons to be nervous about the American stock market. The escalating tensions between the US and North Korea is the main driver of the sell-off, but Hurricane Harvey and US government issues are contributing to it also.
President Trump announced that ‘all options are on the table’ when it comes to North Korea ,and any prospect of war always sends traders running for safe-haven assets, like gold and government bonds.
Traders were already worried about the US government finding the money in order to fund the construction of the wall along the Mexican border, and now when you factor in the clean-up costs of Hurricane Harvey, the outlook is even bleaker. Donald Trump is talking tough at home and abroad, and traders are spooked by it.
FX
The EUR/USD hit its highest level since December 2014 as Hurricane Harvey and the situation surrounding North Korea has sent the US dollar tumbling. The clean-up costs associated with Hurricane Harvey will put pressure on an already fragile US government.
President Trump has warned Washington DC that it better find a way to fund the building of the Mexican wall or risk being shut down. The euro remained attractive to buyers as the French economy grew by 0.5% in the second-quarter, and the German GfK consumer climate report ticked up to 10.9 in August, from 10.8 in July.
The GBP/USD rallied on the back of the weak US dollar, as traders feel the Federal Reserve won’t raise interest rates again this year given what is going on in US politics.
The US government debt ceiling is approaching, and there is a possibility of a government shutdown, and the damages in relation to Hurricane Harvey haven’t been totted up yet. When you add the North Korean chaos into the mix, it really diminishes the likelihood of a rate hike from the Fed in December.
Commodities
Gold has jumped to a new nine month high due to the flight to quality strategy adopted by traders. The metal hit a level not seen since the night of the US Presidential election, as traders scramble for safe haven assets. The weakness in the US dollar made gold even more attractive for dealers.
It was a double win for the metal today. While tensions are running high in relation to North Korea, traders will be cautious about going short on the asset.
Brent crude oil and WTI are weaker on the day as traders assess the disruption caused by heavy rainfall in the US. The full extent of the tropical storm in the US over the last few days is not yet fully known, but both oil production and refining have been hit.
The decline in the number of refineries in operation is weighing on the oil price as their demand is down. Saudi Arabia and Russia are keen to keep the production cut until the end of June 2018, but traders are not paying a whole lot of attention to it, as the major oil producers have lost some credibility recently.
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