The Day So Far…

Just 48-hours after US Secretary of State Rex Tillerson attempted to tame Trump’s expression of fire and fury, the President has once again raised the stakes stating that “they (NK) should be very nervous, because things will happen to them like they never thought possible“, while also declining to rule out a pre-emptive strike on Pyongyang. The result of this language was clearly evident last night where the S&P 500 finally broke the 15-day run of sub 0.3% closes in either direction and the VIX spiked 45%, the 8th largest % move on record.

VIX spike August 2017

Perhaps the most interesting comment that has not been widely publicised this morning is that of the Chinese State-run People’s Daily who reported overnight two explicit points. First is that if North Korea fires first at America then China will accept retaliation, but more importantly if there is any attempt to overthrow the North Korean regime that would be deemed unacceptably and China would intervene as they see fit to ensure that does not happen.

One thing that has been apparent is that with the main protagonists being American and North Korean it has really been the US session that has seen the most market movement. Looking at the specific timings of the last two confrontational speeches/tweets from the US President they have come at precisely 8.23pm and 7.37pm London time. Although this is not an exact science, given the gravity of the situation, if it were to move to the next level then being aware of these patterns of communication is essential to being able to react in a timely fashion should a breaking news headline hit the tape. That being said get the coffee ready if you’re sitting in until the Wall Street close!

The Day Ahead…

Although geopolitics has been the dominant theme this week we get a substantial upgrade in the importance of economic data coming out of the US this afternoon, that being the release of CPI for the month of July. Fed commentary has only made it even more clearer that it is inflation specifically that the central bankers are focused on in order to execute, or alter, their plan for tightening the balance sheet and hiking interest rates one final time before the end of the year. As such, although movement has been tame so far this morning I would not expect that pattern to remain and even if CPI is inline I feel it may unshackle pent up negativity that maybe brewing on the Korean developments in that traders want to first avert any potential disruption from the CPI release before then weighing into the market place.

 

Anthony Cheung
Anthony is a leading market commentator with over a decade of experience accumulated as Head of Market Analysis at a leading news and analysis organisation, and now a Director of Amplify Trading.