This week was clearly a period of strong consolidation for the European equity markets (Stoxx600: -2.6%), US (S & P500: -1.4%) as well as the main emerging markets.
European Banks (BNK) under pressure this week (weekly data)
One reason for this is the escalation of the warmonger rhetoric between the US and North Korea, which now threatens US missile shots at Guam in the Pacific, while Donald Trump hardens its position leaving less room for a diplomatic solution. The devastating potential of a military conflict between the US and North Korea is frightening investors- Americans one primarily- with the capital inflow back to the United States, which explains why the S & P500 falls less than other indices. However, despite the war rhetoric, the US has not begun to evacuate its nationals from Seoul and has not yet sufficient logistics to start a conflict of this type, and no panic is so far observed in Seoul where 25 million people live, so for the time being none of the parties seems to really consider a conflict. What is feared is a loss of control of the situation and an incident causing devastating chain reactions. The most likely is that the US military will simply shoot down any missiles headed for Guam, without directly attacking North Korea and that calm eventually return after this outbreak of fever. A joint diplomatic intervention by Russia and China is also not to be excluded.
Meanwhile, gold plays a key role this week as a safe haven value and is up by more than 2%, there is also a good performance of the bond market which benefits from risk aversion for equities.
Gold (IAU) plays its role of safe haven (weekly data)
As a result, yields fell sharply this week, with the 10-year Bund returning to 0.38%, which had a negative effect on financials, especially European banks whose index fell by more than 4%. From a currencies point of view, no major change is to be seen, and in particular the Euro / dollar remains at its 1.18 level. Oil has consolidated by 2% this week following concerns on oversupply coming from Nigeria and Libya. The volatility thus achieved a marked return this week, with a VIX passing from 10 to more than 15. This is one of the key elements to closely monitor in the coming days
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This week was clearly a period of strong consolidation for the European equity markets (Stoxx600: -2.6%), US (S & P500: -1.4%) as well as the main emerging markets.
European Banks (BNK) under pressure this week (weekly data)
One reason for this is the escalation of the warmonger rhetoric between the US and North Korea, which now threatens US missile shots at Guam in the Pacific, while Donald Trump hardens its position leaving less room for a diplomatic solution. The devastating potential of a military conflict between the US and North Korea is frightening investors- Americans one primarily- with the capital inflow back to the United States, which explains why the S & P500 falls less than other indices. However, despite the war rhetoric, the US has not begun to evacuate its nationals from Seoul and has not yet sufficient logistics to start a conflict of this type, and no panic is so far observed in Seoul where 25 million people live, so for the time being none of the parties seems to really consider a conflict. What is feared is a loss of control of the situation and an incident causing devastating chain reactions. The most likely is that the US military will simply shoot down any missiles headed for Guam, without directly attacking North Korea and that calm eventually return after this outbreak of fever. A joint diplomatic intervention by Russia and China is also not to be excluded. Meanwhile, gold plays a key role this week as a safe haven value and is up by more than 2%, there is also a good performance of the bond market which benefits from risk aversion for equities.
Gold (IAU) plays its role of safe haven (weekly data)
As a result, yields fell sharply this week, with the 10-year Bund returning to 0.38%, which had a negative effect on financials, especially European banks whose index fell by more than 4%. From a currencies point of view, no major change is to be seen, and in particular the Euro / dollar remains at its 1.18 level. Oil has consolidated by 2% this week following concerns on oversupply coming from Nigeria and Libya. The volatility thus achieved a marked return this week, with a VIX passing from 10 to more than 15. This is one of the key elements to closely monitor in the coming days