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Risk Aversion Intensified as Trump and Kim Intensified War of Words Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Thu Aug 10 17 23:48 ET

Financial markets remained in risk-averse mode as the US and North Korea stepped up war of words with China warning Donald Trump that his comments would only aggravate the situation. Wall Street slumped, following decline in Asian and European markets, alongside the jump in the VIX "fear" index. DJIA and S&P 500 indices ended the day -0.9% and -1.9% lower, respectively. Nasdaq plunged -2.1% at close. In the commodity sector, crude oil prices fell on diminished risk appetite and Russia's signal to raise production after the completion of the output cut deal. The front-month WTI crude contract plunged -1.96% while the Brent contract was down -1.52%. Precious metals remained firm on safe- haven demand. the benchmark Comex gold contract gained +0.84% and the corresponding silver contract rose +1.2%, extending its gains for a third straight day. Platinum prices, in its 9-day winning streak, rose to the highest level since April. In FX market, safe-haven currencies continued to gain support. Japanese yen is the best G10 performer. Currently, trading at 108.93, USDJPY is attempting to re-test this year's low of 108.11. Swiss franc extended its renewed strength against the greenback for a third day while in consolidative mode against the euro.

Trump noted that his "fire and fury" statement might not be tough enough after North Korean leader Kim Jong-un announced he's considering to attack US territory of Guam. The US president responded by suggesting that "if he does something in Guam, it will be an event the likes of which nobody's seen before, what will happen in North Korea". Xinhua news agency, China's state media, argued that "tit-for-tat confrontations" between the US and North Korea would "lead nowhere" and "only dialogue can help address reasonable security concerns of the related parties for a solution acceptable to all, ensure denuclearization on the peninsula and bring a lasting peace to the entire region". China noted that it would stand by North Korea's side if the US takes initiative to attack, and would only stay neutral if it's the other way round.

Rate hike expectations have taken a back seat. Reaction to New York Fed President William Dudley's comments was rather muted. He noted that it would "take some time" for inflation to reach the Fed's +2% target, adding that it would take six to ten months for the low inflation readings to "drop out" of the inflation readings. US' PPI fell, for the first time in 11 months, in July. PPI slipped -0.1% m/m, after gaining +0.1% in June. From a year ago, the reading increased +1.9%, slowing from +2% in the prior month. The focus today turns to CPI with the headline reading proably improved to +1.8% y/y and the coire reading steadied at +1.7%.

On the oil market, traders were concerned over the supply outlook as Russian oil producer Gazprom noted that it is "economically feasible" to resume production in mature fields after the OPEC/non-OPEC output deal expires. This news overshadowed OPEC's upgrade of demand outlook for 2018. OPEC forecast that demand for its crude oil would increase to 32.4M bpd in 2018, up +0.2M bpd from last month's projection. In the monthly report, it noted that the recent increase in oil prices was driven by "receding fears of oversupply as solid seasonal demand soaked up some of what is seen as a glut on the market".

 

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