Markets Fall after North Korea Missile
Stock markets across Asia and Europe fell after North Korea fired a missile over Japan. The incident scared investors who turned to safe havens such as the Japanese Yen and the Swiss Franc. The Pound edged up against the US Dollar, but slumped against the Euro. Gold gained $4 per ounce as companies related to precious metals reported a sharp increase in people buying physical gold.
Jean-Claude Juncker, the president of the European Commission, said, after reading all the papers produced by the UK government, that “none of those is actually satisfactory. So there is still an enormous amount of issues which remains to be settled.” Juncker stressed that the EU will commence no negotiations on a new trade relationship with the UK, before all questions are resolved.
Pound Sterling – UK Markets
Today, Sterling jumped against the US Dollar with the exchange rate set at $1.29. The Pound slumped against the Euro, losing 0.4% in value, with the exchange rate set at €1.07, close to a level not seen before since early 2009.
According to a survey published by Nationwide, which is the biggest building society in the UK, the average price for a home declined by 0.1% in August, on a month-to-month basis. Market analysts were expecting an increase in price by 0.1%. Robert Gardner, who is Nationwide’s chief economist, said that the slowdown in house price growth is consistent with signs of cooling in the housing market and the wider economy. Gardner stressed that the slowdown in the housing market is, in some respects, surprising given the strong labour market and mortgage rates kept close to all-time lows.
A report released by the EEF, the manufacturers’ organisation, noted that 75% of the manufacturers surveyed already struggle to fill working places. EEF urges the government to provide clarity on the future of EU workers’ rights and warned that shortage of skilled staff may occur in the future if recruiting from the EU is not going to be possible after Brexit. Manufacturers warned that uncertainty over recruitment can reduce growth and, ultimately, damage the UK economy.
US Dollar – US Markets
The US Dollar tumbled against the Euro with the exchange rate set at €0.83. The US Dollar Index (DXY), which measures the value of the Dollar against six major competitor currencies, slipped by 0.35% at 91.87.
According to an ING report, the tail risk of a geopolitical flare-up in the Korean peninsula area has a significant impact on the US currency. ING’s analysts suggest that headlines associated with war tension trigger a typical flight-to-safety reaction in currency markets, resulting in Japanese Yen and Swiss Franc safe-haven flows increasing. The report stresses that the US is also dealing with its own domestic crisis with Hurricane Harvey, which starts to remind a Katrina-like disaster. ING’s experts even suggest that the disaster in Texas might affect US economic growth in the third quarter of the year, pushing the Fed to delay the hike of interest rates.
A report published by Rabobank said that Janet Yellen’s speech at Jackson Hole didn’t deliver any further clues about monetary policy, disappointing the markets. Rabobank’s economists suggest that her defence of post-crisis regulations minimised her already low chances of another term. President Trump has said in the past that he is aiming at reducing regulations with his economic policy advisor, Gary Cohn, appearing the leading candidate for replacing Yellen as the Fed’s Chair.
Euro – European Markets
The Euro jumped against the US Dollar, gaining 0.7% in value, with the exchange rate set at $1.20. The single market currency took advantage of the fall of the US Dollar due to escalating North Korean tensions and hit a two and half year high.
Good news came from France as data released by the INSEE statistics agency showed that the French economy expanded by 0.5% in the second quarter of 2017 in line with economists’ expectations. This is the third consecutive quarter that the French economy is expanding at this pace. According to data, imports slowed down while exports increased. A second survey published by the INSEE indicated that consumer spending in July increased by 0.7%, a bit better than the expected 0.6%.
A report published by ING said that the market focus has turned to the crucial 7 September European Central Bank (ECB) meeting. ING economists note that the ECB’s preference will be for a cautious tapering, with a very gradual withdrawal of monetary stimulus that ideally doesn’t cause any tightening of financial conditions.
Other Currencies – Highlights
The Pound edged up against the Australian Dollar, trading at 1.63 AUD. Trade Minister Stephen Ciobo said in Beijing that a Chinese government crackdown on offshore property deals will be felt in countries such as Australia. “The impact will be widely felt across a number of countries in which Chinese state owned enterprises and private businesses invest,” said the minister. However, Ciobo thinks that the Australian economy has a very diversified investment base and that the government will ensure that the country attracts investments from other countries.
Sterling rallied against the New Zealand Dollar, trading at 1.78 NZD. New Zealand’s opposition Labour party presented its first detailed fiscal policy, which includes the idea of imposing a tax on tourists to help fund new infrastructure. New Zealand’s tourism has surged in the last three years and Labour party members said that they would speak with customs and immigration officials to find a way to collect the levy. Both Labour and the National Party are expected to require help from the nationalist NZ First Party to form a coalition government, after the upcoming parliamentary election at the end of September.