Relief slide on gold may not last long
World markets kicked off the week with relief, as the degree of tension on the Korean peninsula eased after statements by high-ranking US military officials that a nuclear war with North Korea is not foreseen in the short term. This also reduced the likelihood of the exchange of missile strikes, the main potential cause of the escalation of the military conflict, which allowed the stock markets to distract from geopolitics and stimulated the growth of global appetite for risk. Futures for US equities as well as Asian stock exchanges went up, except for the Japanese Nikkei 225, the VIX fear index fell today by 15%, parrying a surge of fears last Thursday, when the index added 14% within a day.
It is obvious that even additional sanctions imposed against the regime of Kim Jong-un can not fully block the trade with China, North Korea's main trading partner. Further buildup of weapons, including nuclear weapons, will occur regardless of how much the world will try to push the country into even deeper isolation, since disarming or even limiting the testing of ballistic missiles will in fact be a defeat of the Kim Jong Un's totalitarian regime in general. The unpredictability of the decisions of the North Korean leader remains a risk factor that can repeatedly remind of itself in the medium term, so the current correction of the defensive assets can be viewed as a potential opportunity to build up long positions.
Uncertainty in the oil market has concluded prices in a narrow range, characterizing trade for more than two weeks. Last week, the IEA raised the outlook for global demand, but it clouded sentiments with the statement that OPEC's commitment to output curbs decreased to 75%. The number of drilling rigs in the US, which is the leading indicator of oil production in the country, increased by 3 to 768, after several weeks of decline. The main catalysts this week will traditionally be reports on commercial inventories in the US from the API andEIA, except for them, the news background is relatively calm.
Reducing geopolitical risks allowed investors to consider the potential for the recovery of the dollar, despite the fading economic picture of the US economy. On Monday, the weighted average index rose by 0.25%. Consumer inflation fell short of forecasts, erasing an outburst of optimism from NFP, the next rate hike is anticipated at the Fed meeting in June 2018. Particular attention should be paid to the minutes of the Fed meeting, the release of which is scheduled for Wednesday, which is likely to be investigated for positive comments, since the main negative is already priced in the dollar.
Arthur Idiatulin, Tickmill Market Watcher
It is obvious that even additional sanctions imposed against the regime of Kim Jong-un can not fully block the trade with China, North Korea's main trading partner. Further buildup of weapons, including nuclear weapons, will occur regardless of how much the world will try to push the country into even deeper isolation, since disarming or even limiting the testing of ballistic missiles will in fact be a defeat of the Kim Jong Un's totalitarian regime in general. The unpredictability of the decisions of the North Korean leader remains a risk factor that can repeatedly remind of itself in the medium term, so the current correction of the defensive assets can be viewed as a potential opportunity to build up long positions.
Uncertainty in the oil market has concluded prices in a narrow range, characterizing trade for more than two weeks. Last week, the IEA raised the outlook for global demand, but it clouded sentiments with the statement that OPEC's commitment to output curbs decreased to 75%. The number of drilling rigs in the US, which is the leading indicator of oil production in the country, increased by 3 to 768, after several weeks of decline. The main catalysts this week will traditionally be reports on commercial inventories in the US from the API andEIA, except for them, the news background is relatively calm.
Reducing geopolitical risks allowed investors to consider the potential for the recovery of the dollar, despite the fading economic picture of the US economy. On Monday, the weighted average index rose by 0.25%. Consumer inflation fell short of forecasts, erasing an outburst of optimism from NFP, the next rate hike is anticipated at the Fed meeting in June 2018. Particular attention should be paid to the minutes of the Fed meeting, the release of which is scheduled for Wednesday, which is likely to be investigated for positive comments, since the main negative is already priced in the dollar.
Arthur Idiatulin, Tickmill Market Watcher
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