Equities Retreat on North Korean Missile ThreatsSubmitted by Guidant Planning on August 15th, 2017
August 14, 2017–U.S. stocks ended with small gains last Friday, slightly paring a three-day slide to finish a volatile week lower amid North Korean threatened missile attacks and reprisal warnings by President Trump. However, Friday’s return to relative calm was not enough to undo market damage from the geopolitical rhetorical furor, with the Dow Industrials and S&P 500 experiencing their worst weekly declines since March. Following North Korea’s threat to strike Guam, the VIX Volatility spiked by 56% during the week, with 44% of the rise occurring on Thursday. Tensions eased on Friday, after China issued a stark warning to Kim Jung Un that if North Korea initiates or threatens hostilities against the U.S. with first-launch missiles, China would remain neutral and offer no military assistance, come what may, in reprisals by the United States. Yet the warning was double-edged in that China stated that it would intervene if the U.S. strikes first. European and Chinese equity markets also broadly retreated, with the Stoxx Europe 600 down 2.59% and the Shanghai Composite fell 1.61%. The MSCI All-Country World Index lost 1.53%.
Signs of U.S. inflation continue to be soft as the Producer Price Index, the key measure of wholesale price movement, unexpectedly fell 0.1% in July, thefirst drop in almost a year. The core PPI, which excludes volatile food and energy prices, was unchanged. Consumer Price Index edged 0.1% higher in July, following an unchanged reading the month prior. The core CPI also rose 0.1% and both measures are up 1.7% from a year ago. In other key economic data last week, July small business optimism rose to 105.2 from 103.6 in June, its first increase since January, while Labor Department’s JOLTS report showed job openings waiting to be filled surged by 461,000 to a record 6.16 million in June.
For the week, the S&P 500 fell 1.37%, the Dow Industrials declined 1.06% and the NASDAQ Composite sank 1.44%. Within the S&P 500, 10 of its 11 major sector groups ended with declines last week, led by sharp losses in Financials (-2.69%), Energy (-2.58%) and Materials (-2.04%). Utilities (-0.21%) fell the least, while Consumer Staples (+0.13%) posted a fractional gain. West Texas Intermediate (WTI) crude oil futures fell 1.53% to $48.83/barrel, its worst weekly pullback in a month, after compliance with OPEC’s output reduction deal faltered. Gold futures advanced to a two-month high amid safer-haven buying, gaining 2.43% last week and 11.90% year-to-date. The U.S. Dollar Index weakened by 0.51% last week, ending at 93.069, while Treasury prices rallied on global tensions. The yield on 10-year Treasury notes fell by 6.4 basis points ending at 2.19%.
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