Modest Market Reactions to Bellicose Rhetoric, Mostly in Direction Already Moving

<br /> Modest Market Reactions to Bellicose Rhetoric, Mostly in Direction Already Moving – Marc to Market<br />


The bellicose rhetoric from the US and North Korean officials is
the main driver today. 
 We would qualify that assessment by noting that first, the
market moves are rather modest, suggesting a low-level
anxiety among investors. Second,  pre-existing trends have mostly been extended.
Turning to Asia first, the
Korea’s equity market fell 1.1%.  
The Kospi has fallen for the past two weeks (~2.2%).  Through
July it was up eight months in a row.  However, as we had noted previously, foreign investors had begun taking
some profits since July.  In the first six months of the year, foreigners
bought nearly $9 bln worth of Korean equities, and here in Q3, they have sold almost $1 bln.  The
Korean won fell 0.9% today.  The US dollar has edged 0.6%
higher against the won over the past two weeks.  The dollar fell 2.2%
against the won in July.  
The MSCI Asia Pacific Index
was off 0.4% today. 
has risen once in the past five sessions.  The Nikkei suffered a slightly
larger decline than the Kospi (-1.3%).  The rising yen (the dollar sold
through JPY110) may have also weighed on Japanese equities.   The Nikkei
has fallen for the past three weeks and
has posted a decline in five of the past six weeks.  
The price of gold has risen
0.6% today on top of yesterday’s 0.25% rise.
  It had fallen 0.9% last week, which ended a
three-week advance.  The price of gold is up $10 an ounce this week and
$27 an ounce since the end of Q2.  
European shares are lower as
well today, with the Dow Jones Stoxx 600 off 0.65% in late morning turnover in
benchmark rallied 1.1% last week, though it had lost 3.1% in the back-to-back
decline in June and July.  Financials and
materials are the hardest hit today, but all sectors are lower.  
Bond yields
are lower.
 European 10-year benchmark yields are
mostly 3-4 bp lower, while the US 10-year yield is off two bp to dip below 2.24%.  Among two-year tenors, the demand
for Germany is clear, with the yield off
nearly three basis points to 70 bp.  Spanish and Italian two-year yields
are 1-2 bp higher.  
There have been two economic
reports to note. 
was China’s July inflation readings.  July consumer prices eased to 1.4%
year-over-year from 1.5%.  Food prices fell 1.1%, while non-food prices
rose 2.0%.  On the month, CPI rose 0.1%.  Producer prices remained at
5.5% for the third month.
Second, Italy reported a
considerably stronger than expected June industrial production report that will
lift expectations for Q2 GDP, which will be reported in a week’s time
by transportation and energy, Italian industrial output jumped 1.1% in June.
 The market had been looking for around a 0.2% gain.  It follows a
0.7% rise in May.  Industrial production rose an average of 0.5% a month
in Q2 after falling 0.3% a month in Q1.  Q3 comparisons may be difficult as
last year Italy posted some strong
increases.  Still, the favorable news follows on the heels of better than
expected employment and retail sales data.  
The US dollar is decidedly
Swiss franc, not the yen is the strongest of the major currencies.  It is
up nearly 1.1%.  If sustained, it could be the biggest single day dollar
loss against the franc this year, edging out more
than 1% losses on January 5 and May 16.   The dollar was sold
against the yen yesterday, finished the North American session on its lows, and
proceeded to sell-off further in Asia.  The dollar hit a low near JPY09.60
in the European morning and appears poised to recover.
 JPY110.00-JPY110.20 which had been supporting
now may act as resistance.  We note that there is about $1.3 bln dollar of
options struck between JPY109.75 and JPY110.00 that expire today.  
The euro held yesterday’s
low near $1.1720, but the upside appears blocked by the $1.1760-$1.1770
are around 1.2 bln euros of options struck between $1.1700 and $1.1725 that expire
today.  The euro is up four consecutive weeks coming into this week’s
session. After the healthy US jobs data, widening of interest rate
differentials, and the sharp fall in Macron’s support in France,  coupled
with the overstretched technical indicators warned of the risk of a euro
setback.  Thus far the euro’s pullback is minor.  A break of $1.1680
would likely be needed to signal another leg lower.  Should the euro’s
losses be sustained, it would be the first back-to-back fall in the euro since
July 12-13.  
Sterling closed below $1.30
yesterday for the first time since July 21. 
It fell to almost $1.2950 yesterday but seems content to consolidate
today.  It moved above $1.30 again in late Asia
but is trying to build on those gains in Europe.   Resistance is pegged near $1.3040-$1.3060.  We note
that the five-day moving average is falling through the 20-day average for the
first time since late June today.  

Late yesterday, API reported
a sharper than expected drop in US oil inventory. 
 The nearly 7.9 mln barrel draw down
contrasts with expectations for around a 2.2 mln barrel decline.   The EIA
(DOE) estimate today will be looked upon for confirmation.  For the sixth
session running, the September light sweet crude oil futures contract looks to
trade comfortably between $48 and $50 a barrel.   US does report Q2 unit
labor costs and productivity.  These are derived from the Q2 GDP estimate
and are not independently observed.  


Modest Market Reactions to Bellicose Rhetoric, Mostly in Direction Already Moving
Modest Market Reactions to Bellicose Rhetoric, Mostly in Direction Already Moving

Reviewed by Marc Chandler

August 09, 2017

Rating: 5

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