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Another Nuclear Test in North Korea Rattles Financial Markets Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Sun Sep 03 17 23:23 ET

Financial markets begin the week in a risk-off mode, as investors assess the impacts of North Korea's 6th nuclear test over the weekend – launching an advanced hydrogen bomb for a long-range missile. The South Korean government earlier today expressed concerns over the geopolitical tensions' impact on the real economy, pledging to implement contingency policies to stabilize the economy if needed. Asian stock markets dropped with South Korea's KOSPI index has lost +0.7% at the time of writing this report. Japanese yen, Swiss franc and gold rallied on rising safe-haven demand.

The US employment report for August (released last Friday) was somehow disappointing. Non-farm payrolls increased +156K, compared with consensus for +180K and July's downwardly revised +189K addition. The unemployment rate added +0.1 percentage point to 4.4%. Average earnings rose just +0.1%, missing consensus of +0.2% and the +0.3% growth in July. This has nonetheless dented hopes for another Fed funds rate hike later this year. Narrowing in US-CAD yield differentials has also boosted Canadian dollar, sending USDCAD to the lowest level in more than 2 years last Friday. Undoubtedly, strong Canadian GDP growth has also heightened speculations of a BOC rate hike. While the base case remains a rate hike of +25 bps in October, there are increasing bets of a rate hike at the meeting this week.

We have a busy week ahead. Besides the BOC meeting scheduled on Wednesday, we have the RBA meeting on Tuesday and the ECB meeting on Thursday. There have been much speculation for the latter. There have been rumors that the ECB would delay its QE tapering due to the recent rally in the single currency. However, we believe euro's strength of late has more been due to the unattractiveness of other currencies, especially the greenback and sterling. We expect the ECB to warn of euro's strength but maintain the rhetoric that it stands ready to extend/expand asset purchases, if needed. The central bank might begin formal discussion in October. Throughout the week, we would be receiving a number of speeches from Fed presidents, beginning with Governor Brainard, Minneapolis' Kashkari (voter) and Dallas' Kaplan (voter) all speaking on Tuesday, followed by Cleveland's Mester (nonvoter), New York Fed President Dudley and Kansas City's George (nonvoter) on Thursday and Philadelphia Fed President Harker (nonvoter) on Friday.

Commitments of Traders

Speculators were mixed over the energy complex in the week ended August 29. Net LENGTH for crude oil futures slumped -79 583 contracts from a week ago to 365 865. NET LENGTH of heating oil increased +6 245 contracts to 31 459 while net LENGTH for gasoline rose +4 252 contracts to 68 199. Net SHORT for natural gas increased -1 092 contracts to 43 330 for the week.

Speculators were bullish over the precious metal complex last week. Net LENGTH for gold surged +22 609 contracts to 231 047, while that for silver futures gained +9 099 contracts to 53 645. For PGMs, net LENGTH for platinum rose +4 006 contracts to 35 830 while that for palladium added +196 contracts to 23 469.


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