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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

North Korea Rocks Wall Street

Stock-Markets / Investing 2016 Sep 12, 2016 - 10:11 AM GMT

By: ....

Stock-Markets

U.S. stocks are falling like crazy in the aftermath of the latest of North Korean nuclear tests, sending traders into the state of frenzy. It even seems to have nudged Fed officials towards an interest rate increase, albeit only a little. It appears there is no shortage of market capital news this week.


The fifth nuke

So far, Pyongyang has only been able to conduct four nuclear tests, and of relatively minor strength, but the fifth one set off a number of alarms, which also coincided with the launch of three ballistic missiles during the G20 Summit. To add to a climate of mistrust, North Korea has made claims that they have the capability of mounting their warheads on a ballistic missile – the kind that was launched just the other day, has stirred quite a few spirits in both North Korea's traditional enemies and their staunchest allies. In other words, both the U.S. and China seem to be coming to the same conclusion regarding the regime in Pyongyang, with Japan and South Korea having thrown their lot with the Americans decades ago.

As for the markets within the U.S., the equity market saw Eric Rosengren of Boston Fed making statements about the need to raise the Federal Reserve rates while there is still time, as well as the risks that they would be running if this is not done as soon as possible. It seems as though both

he and the powers that be are in agreement that the rates need to go up, albeit gradually and in a controlled fashion.
When you put two and two together, the North Korean tests and international outrage on one hand, and such statements from senior Fed officials, is it any wonder that markets get a bit... panicky? The anxiety that is perfectly normal, and the first thing rookie traders are warned about is gripping even the bravest Wall Street brokers.

Hold your horses

On the other hand, there are statements from the other camp inside the Federal Reserve, led by Governor Daniel Tarullo, who also has a vote on the matter, and his packs some serious punch, who made a claim to CNBC that the U.S. inflation rates need to be examined more closely before giving in to market pressure and all those scared investors demanding a hike. Unless there are conclusive evidence that the 2% mark is being met, he would be unlikely to raise his hand in favor of another hike this year, although he did not rule out that possibility, either.

Meanwhile, the Dow Jones .DJI fell 194.77 points (which translates to more than one percent), the S&P 500 .SPX lost 1.22 percent while the Nasdaq Composite .IXIC is down 1.13%, and this trend is likely to continue for a little while longer.

As for the Fed, their meeting is due on Sept. 20-21, where they will discuss a number of matters related to monetary policy, as well as a possible rate hike. Right now, the odds are at 27% if you believe CME, whereas they stood at 9% lower mark just 24 hours ago. A jump from 18 to 27% in a single day is nothing to scoff at, nukes or no nukes.

As for the utilities and telecoms, they went down 2.3 and 1.8% respectively, ranking them at the very top of the major S&P sectors, who have otherwise been among the top performers this year, with high dividends making them ideal as a bond proxy.

On the whole, U.S. stocks have not been performing that well for the past couple of months, considering that S&P 500 hasn't moved more than one percent at a close since early July. To say it has been running a bad track would be an understatement. On the other hand, the energy shares were down 1.8%, plus Brent LCOc1 and U.S. crude CLc1 and Exxon Mobil (XOM.N) have all registered a significant fall.

To conclude

The fifth and largest North Korean nuclear test sent a shockwave that registered the hardest on the Wall Street scale, rocking numerous stocks to their very core. However, this situation is not likely to last very long, unless Pyongyang decides to flex its muscles a little while longer, risking yet another conflict in a very turbulent part of the globe.

 

 


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