US equities slip as North Korea threatens to shoot down US bombers - 26.9.2017

Technology stocks drag US stock market lower

US stock indexes retreated on Monday after North Korea tensions flared up as it threatened to shoot down US bombers. The dollar strengthened: the live dollar index data show the ICE US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, rose 0.4% to 92.65. S&P 500 closed 0.2% lower settling at 2496.66, led by technology stocks. Six out of 11 main sectors finished in the red. The Dow Jones industrial average lost 0.2% to 22296.09. The Nasdaq composite index fell the steepest closing 0.9% lower at 6370.59 as Apple fell 0.9%.

Treasury yields fell as demand for haven assets rose after Angela Merkel’s party won the lowest share of votes in more than half century as it came in first in German election. Investor’s confidence was undermined also by North Korea’s threat to shoot down US bombers even if they are not in its air space as its foreign minister claimed President Trump’s recent tweets about North Korea were “clearly a declaration of war”. Dollar strengthened despite mixed signals by Fed officials about another possible rate hike this year. Chicago Fed President Charles Evans, a voting member of the policy committee, said the US central bank should not hike rates until there are “clear signs” of building wage and price pressures. However New York Fed President William Dudley said he saw signs that some of the “temporary” factors that were holding inflation down were fading, citing the rise in import inflation. In other economic news Chicago Fed national activity index for August declined when a slight increase was expected.

Merkel’s win in German election supports European stocks

European stocks ended higher on Monday as Merkel’s center right bloc won Germany’s general election. The euro and British Pound fell against the dollar. The Stoxx Europe 600 index rose 0.2%. The DAX 30 ended marginally higher at 12594.81, erasing earlier losses. France’s CAC 40 lost 0.3%. UK’s FTSE 100 fell 0.1% to 7301.29. Indices opened 0.2% lower today.

Euro fell against the dollar and Pound as Merkel’s center right bloc won 33% of the vote, lower than in previous election. And the far right anti-immigrant Alternative for Germany won around 13% of the vote. With Merkel forced to form a coalition government with Greens and Free Democrats as Social Democrats, partners in the outgoing coalition, said they would go into opposition, investors are concerned this will add more uncertainty to euro-zone financial outlook. In economic news, German business confidence fell unexpectedly in September: the Ifo business climate index declined to 115.2 from 115.9 in August when no change was expected.

Asian stocks fall on rising geopolitical tensions

Asian stock indices are mostly lower today as investor confidence was undermined by rising tensions on Korean Peninsula. Nikkei fell 0.4% to 20319.50 as yen extended gains against the dollar. Chinese stocks are edging higher while real estate stocks slipped as government put forward new measures to cool the sector: both the Shanghai Composite Index and Hong Kong’s Hang Seng Index are up 0.1%. Australia’s All Ordinaries Index is down 0.2% on lower metal prices despite continued decline in Australian dollar against the greenback.

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Oil edges lower

Oil futures prices are correcting lower today on concerns higher prices would support increased US crude output. The US Energy Information Administration said that production from wells in shale formations will rise for a 10th month in a row in October. Prices jumped Monday after Turkish President Erdogan threatened to cut off the pipeline that carries between 500 thousand and 600 thousand barrels per day oil exports from Iraq’s Kurdistan region. November Brent crude rose 3.8% settling at more than two-year high $59.02 a barrel on London’s ICE Futures exchange on Monday.