US vs North Korea Spooked Global Financial Markets

Rising tensions between the United States and North Korea spooked global markets this week. US president Donald Trump responded aggressively to threat from North Korea. Trump said North Korea 'will be met with fire and fury like the world has never seen' if it threatens the United States, adding, 'Best not make any more threats.'

Following Trump's remarks, North Korea said it was carefully examining plans for a missile attack on the US Pacific territory of Guam.

US Defense Secretary Jim Mattis told Pyongyang it should stop any actions that would lead to the end of its regime and the destruction of its people.

Trump responded to North Korea's comment by saying that the nuclear-armed nation should be very, very nervous if it even thinks about attacking the United States or its allies.

This back and forth raised concerns among markets. Stocks sold off globally as investors rushed to safe havens, benefitting gold and the Japanese yen. Investors also flocked to alternative assets such as bitcoin, which hit an all-time high.

The dollar index too gained. But the gains were more to do with robust job market data released last week. This underscored the view that the Federal Reserve has ammunition to continue on its tighter monetary policy path.

Meanwhile, China's exports and imports grew much less than expected in July, raising concerns over whether global demand is starting to cool even as major Western central banks consider scaling back years of massive stimulus support.

China's export growth slowed to 7.2% in July from a year earlier. This was the weakest growth since February and slipped from an 11.3% rise in June. China's imports rose 11%, the slowest since December and down from a 17.2% rise in the previous month. The trade surplus of US$46.74 billion for the month, the highest since January, compared with forecasts for US$46.08 billion and June's US$42.77 billion.

This was a bit discouraging. Investors have been more focused on China's import data. The weaker import growth could be the first sign of a slowdown in the world's second-largest economy.

Apart from this, China's factory price inflation held steady in July. The producer price index (PPI), rose 5.5% YoY and remained unchanged from June. This is a positive sign for the Chinese economy.

China's consumer price index (CPI) slowed slightly to 1.4% in July from a year earlier, missing market expectations by a small margin. The inflation was pressured by a fall in food prices. Inflation is still a major concern for major economies including US, Europe, and Japan.

But as far as China is concerned, the dragon economy has plenty of legs left to stand on. A report in Vivek Kaul's Inner Circle (requires subscription) points out some positive signs emerging in the Chinese economy, without ignoring the longer-term risks and challenges.

Global indices ended the week on a negative note. European stocks traded on a weak note. Germany (DAX) ended with a loss of 2.31% and France (CAC) ended with a loss of 2.74%. The London market (FTSE) was down 2.69%. Asian markets too ended the week on a negative note. The Nikkei Index was down 1.50%, the Hang Seng Index was down 2.46%, and the Shanghai Index was down 1.58%. US markets traded in the red and ended their session with a loss of 1.50%

Indian Stock Markets Plunges on Geopolitical Tensions

Back home, Indian indices traded the week on a negative note taking cues from global markets. The BSE Sensex was down 3.44% for the week, and the NSE Nifty was also down 3.53%.

All sectorial indices traded in red. Realty (-9.80%), Healthcare (-7.71%), and Auto (-6.10%) were the biggest losers for the week.

The Indian stock market regulator directed stock exchanges to take action against 331 suspected shell companies, which will not be available for trading on bourses this month. Shell companies are entities generally used for laundering illegal funds.

The above development is said to boost investor confidence as well as eliminate black money and laundering of illegal funds in capital markets.

As per The Economic Times, individual income tax returns jumped 25% so far in the current financial year as the authorities turned up the heat on evaders after demonetisation.

As per the data, the returns filed by individuals were 25.3% higher at 27.9 million as of 5 August. This was an addition of about 55 lakh from 22.3 million in the corresponding period of 2016-17.

Growth in filing in the previous year was 9.9%. Going by the data, it comes out that a substantial number of new taxpayers have been brought into the tax net following the notebandi exercise.

There was also a jump in the number of registered tax payers under the goods and services tax (GST). Reportedly, as of 24 July, 7.95 million applicants had sought GST registration. That is 99.3% of the 8 million tax base under the earlier system comprised of assesses of state value-added tax (VAT), service tax, and central excise duty.

This will aid India's tax revenues and augurs well for a country that has one of the lowest tax revenue as a percentage of GDP.

The higher tax revenue receipt will help bolster the country's financials and provide further ammunition for the government to spend on social welfare and infrastructure.

A wider tax base could also allow the government to lower its tax rates.

The Goods and Services Tax (GST) Council is said to have decided to raise cess on luxury automobiles to 25% from 15%. This would hinder the high-end automobile manufacturers.

The GST Council also revised rates on 19 services last Saturday. It also reduced the GST rate on job work in the textiles sector to 5% from 18%, which will reduce the rate of job work across the entire textile chain.

The GST Council is also said to soon publish post GST product rates to companies to pass on gains, including those from input tax credit. It will have a detailed explanation of previous taxes and prices as well as new prices after GST and explain the price differential between the two tax regimes.

The development comes as several ministers argued that prices of products have not come down after GST.

To begin with, 150 items may be taken up. States such as Kerala, West Bengal, and Bihar have led the charge at a recent meeting to lay down the process for the above development to reduce prices.

Speaking of GST, the Goods and Services Tax became law last month. And for months before it was implemented, we have been subjected to a relentless propaganda by the government and the supporters of the GST, on how it will change our world, only for good.

Our colleague Vivek Kaul has studied the finer aspects of the GST and predicted what could go right and wrong.

Download his special report - The Good, the Sad and the Terrible (GST).

Moving on to news from the IPO space. State-owned reinsurance company General Insurance Corp (GIC) and insurance company New India Assurance Co (NIA) are set to come out with initial public offerings (IPO) soon as these companies filed the draft red herring prospectus (DRHP) with the regulator this week.

Among the IPOs that made a debut this week, Security and Intelligence Services (SIS) made a decent debut as the company's share listed at an 8% premium over its issue price.

The Cochin Shipyard made a flat debut as the company's shares listed at a 0.7% premium over its issue price on the BSE. However, the stock witnessed buying interest thereafter and rose around 20% intra-day.

You don't need thousands of IPOs to get rich. That's not how super investors make their fortunes. But a few good IPOs could certainly become the multibaggers in your portfolio in a few years.

Download this FREE report now and discover How to Get Rich with IPOs. This guide will show you how to safely profit from the 2017 IPO rush.

Nifty 50 Index Slips 3.5% for the Week

The Nifty 50 Index traded in a downtrend during the week. On Monday, it opened the session a bit higher but bears quickly started to dominate and the index slipped sharply to cut more than 350 points (-3.53%) by the weekly session close.

In earlier note, we mentioned the index was trading near its channel resistance line and the RSI indicator was forming a double top pattern. This indicated limited upside and thus we expected a correction towards the channel's support line at 9,800. Our rollover report also signaled the possibility of a correction.

The index corrected sharply; in fact, it broke the channel's support line on the last day of the week. It also closed below the 50-day exponential moving average (EMA), which acted as support during previous reaction.

Does this indicate a further downside in the index?

If the index sustains below the channel's support line and the 50 EMA, the bears might have the upper hand. But if the index recovers above the channel's support line and the 50 EMA, the bulls might be back in action.

COMMODITIES

Gold Witnesses Buying Interest

Gold traded on a positive note during the week. On Monday, it opened the session lower and traded on a negative bias until next day close. Apart from a weak trend overseas, easing demand from local jewellers and retailers also weighed on gold. On Wednesday, the yellow metal gapped up and witnessed strong buying interest for the remaining days of the week. The buying was seen as market participants sought safe havens on escalating tensions between North Korea and the US. Finally, on Friday, gold continued to trade positive and ended its weekly session with 2.81% gains.

Gold Gains 3% for the Week

Silver Follows Golds' Lead

Silver also traded on a strong note during the week. Like gold, it opened lower on Monday but recovered immediately and traded in a strong uptrend throughout the week. The buying was seen owing to a firm trend in metals overseas amid rising tensions between the US and North Korea. On Friday, the white metal traded a bit down but ended the weekly session 5.18% up.

Crude Oil Traded on a Negative Note

Crude oil also traded on a negative note during the week. On Monday, it opened the session down and recovered a bit towards the session's end. But the black gold traded with a downward bias until Wednesday open. It witnessed some buying interest during midweek as inventories fell and Saudi Arabia cut supplies to most of its buyers in Asia. But the oversupply concerns remained and as a result the commodity slipped again towards the end of the week. Finally, on Friday, crude oil continued to trade down and ended its weekly session with 0.70% loss.

Crude Oil Ends in the Red

Natural Gas Prices Soared

Natural gas traded in an uptrend during the week. On Monday, the commodity opened its weekly session higher and continued to trade strong throughout the week. The commodity rose as stronger exports boosted sentiment. Bullish weather and lower than expected storage too fueled rally. Natural gas remained flat on Friday to close its weekly session with 7.64% gains.

CURRENCIES

Dollar Traded on a Positive Note

The dollar traded on a positive note during the week. It opened its weekly session higher and closed the session positive. It witnessed some profit booking the next day but the dollar recovered and traded with a positive bias for the remaining days of the week. The rupee weakened against the dollar due to mounting tensions between the US and North Korea. Dollar demand from importers and banks amid foreign fund outflows also led the rupee to tumble. Finally, on Friday, the currency continued to trade positive and ended the weekly session with gains of 0.76%.

Dollar Witnesses Buying Interest

Euro Ends in the Red

The euro too traded on a negative note during the week. It opened the weekly session lower and continued to trade down until Wednesday close. The euro fell despite strong German trade surplus. The currency witnessed some buying on Thursday. The euro traded up on Friday as well and ended its weekly session with marginal loss of 0.17%.

Pound Ended Marginally Lower

The pound traded on a negative note during the week. It opened the weekly session lower and continued to trade down until Wednesday open. The currency witnessed some buying midweek. The pound traded steady on the back of UK manufacturing production data that was in line with estimates. On Friday, the pound continued to trade down against the rupee and ended the week 0.58% down.

Yen Trades on a Positive Note

The yen traded on a strong note during the week. On Monday, it opened the session lower but recovered gradually during the week to trade in an uptrend as investors sought safe havens. The yen traded up as Japan's current account surplus was within the expectations. Finally, on Friday, the yen continued to trade strong and ended the weekly session up 1.56% against the rupee.

Commodities 04th Aug 11th Aug % Change
Gold/10 gms 28,406 29,203 2.81%
Silver/kg 37,262 39,194 5.18%
Crude Oil/barrel 3,149 3,127 -0.70%
Natural Gas/mmBtu 178.10 191.70 7.64%
Currencies 04th Aug 11th Aug % Change
USD / INR 63.78 64.26 0.76%
EUR / INR 75.78 75.65 -0.17%
GBP / INR 83.91 83.42 -0.58%
JPY / INR 57.99 58.90 1.56%

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