by Pinchas Cohen
Key Events
It may have been naive to assume that Kim Jong-un, North Korea's Chairman and supreme leader would cease his saber rattling and put a stop to ongoing missile tests after US President Donald Trump’s recent 'Fire and Fury' remarks. Yesterday the country fired a ballistic missile over Japan, despite, or perhaps in response to Secretary of State Rex Tillerson’s praising North Korea’s “restraint” last week.
While doves might blame Trump’s aggressive response for fueling North Korea's war mongering, hawks could blame Tillerson’s appeasement. Whatever the triggers may actually have been, traders fired up their equity sell orders and prices fell this morning in Asian trading. At the same time, the usual safe havens—including gold, the Japanese yen and the Swiss franc—shot up. Gold climbed to its highest point this year, above the $1,300 key level; the unstoppable euro extended its gains, doubling yesterday’s more than 1 percent advance, shooting past the critical 1.2000 level for the first time since December 2013.
Still, even with the escalation in geopolitical worries, including the real possibility that hostilities could be heating up as each side appears unwilling to back down, investors remain bullish on the market as Asian stocks rebounded from the day’s lows, even while volatility increased.
Global Affairs
That sentiment was most apparent via Japan's TOPIX.
Though yesterday the threat from North Korea was aimed squarely at Japan, during the course of today's Japanese session, buyers pared almost all the index's earlier losses. The TOPIX closed down 0.15 percent, after having earlier been down 0.70 percent. European stocks and US futures followed Asian equities down at their open.
As was discussed yesterday, here, tropical Storm Harvey is bullish for gasoline and bearish for oil. Refineries in Texas that have been taken offline by the storm can’t refine crude, which will continue to raise stockpiles, and the demand for energy will shift to gasoline.
After yesterday’s 2.25 percent decline, oil is rebounding, having found support at $46.66, a key price level that has been drawing a line of support and resistance, as it has been alternating with shifting market psychology since March 14. Still, yesterday’s price registered its lowest price, $46.16, since July 24, potentially ending the rally since June 21, after recording a lower trough than on August 17, completing the minimum requirement of two peaks and troughs that would define a trend—in this case, a downtrend.
A firmer reversal signal would be on a close below the August 17 low of $46.46. The fact that the price closed yesterday not only above the previous low, but even above the August 17 close, demonstrates that bulls consider this price level a line in the sand they’re willing to defend.
After a leap of 12.5 percent in 4 sessions, the price of gasoline futures is declining, within a return move to a completed H&S bottom, at the 1.7000 area.
Up Ahead
- 7am: Germany – GfK Consumer Confidence (September): surprised to the upside after being forecast to fall by 10.7 from 10.8.
Yesterday, the EURUSD pair completed a bullish falling flag—a consolidation in which investors “catch their breath” after a sharp move—with a decisive upside breakout that closed above its previous, August 2, 1.1911 high, to boot. Today the single currency extended the advance, doubling yesterday’s gains. While a return move to retest the pattern's support is common, which would coincide with the rising trendline since April 11, up around 1.1800, the minimum upside target is 1.2200.
- 10:00: US - Conference Board consumer confidence (August): expected to fall to 120 from 121.
The US Dollar Index completed a bearish rising flag, which provides a target similar to the previous sharp decline of 390 pips from the 93.00 breakout level.
Market Movers
Stocks
- Japan’s TOPIX index closed 0.2 percent lower after falling as much as 0.7 percent earlier in the session, while South Korea’s KOSPI Index lost 0.2 percent, paring a drop of as much as 1.6 percent.
- Sydney's S&P/ASX 200 Index declined 0.7 percent.
- Hong Kong’s Hang Seng Index fell 0.3 percent, while the Shanghai Composite fluctuated before edging higher.
- Thailand’s SET Index bucked the general trend, rising 1.9 percent. Concern about political violence within that country has eased, according to CLSA.
- The Stoxx Europe 600 Index dipped 1 percent as of 8:29. in London (3:29 EDT) to its lowest level in almost seven months.
- The UK’s FTSE 100 fell 1 percent, its biggest decline in more than two weeks on a closing basis.
- Germany’s DAX Index sank 1.2 percent to the lowest in more than five months.
- S&P 500 Futures fell 0.7 percent to their lowest point in seven weeks.
Currencies
- The US Dollar Spot Index dipped 0.57 percent to the lowest in more than two years.
- The yen advanced 0.6 percent to 108.57 per dollar.
- The USD/KRW slid 0.5 percent to 1,126.15 per dollar.
- The euro gained 0.3 percent to $1.202, the strongest in almost three years.
- The British pound climbed 0.1 percent to $1.2951, the strongest in more than two weeks.
Bonds
- The yield on 10-year Treasuries declined five basis points to 2.11 percent, the lowest in almost 10 months.
- Germany’s 10-year yield dipped four basis points to 0.33 percent, the lowest in two months.
- Britain’s 10-Yyear yield decreased four basis points to 1.012 percent, the lowest in two months.
Commodities
- West Texas Intermediate crude increased 0.2 percent to $46.68 a barrel.
- Gold rose 0.9 percent to $1,320.72 an ounce.
- Gasoline for September delivery climbed 0.8 percent to $1.7256 a gallon, after climbing 2.7 percent on Monday.