Opening Bell: U.S.-North Korea Flop Deepens Stock Selloff; Boosts Gold, Yen

February 28, 2019

Frankfurt (Feb 28)  Shares in Europe dropped alongside futures on the S&P 500, Dow and NASDAQ 100 this morning, tracking an Asian selloff, after the much anticipated U.S.-North Korea summit ended earlier than expected, with no signed agreement. Safe havens including gold, the yen and Treasurys strengthened on risk-off demand.

Suddenly, geopolitics were back in the mix: an abrupt, premature end to the Trump-Kim summit; mounting worries around the India-Pakistan standoff; Brexit posing ongoing yet unquantifiable risks to the wider financial system.

Adding to that, weak Chinese manufacturing data returned the global slowdown to the forefront of market's attention, pushing the STOXX Europe 600 lower with miners shares.

Seemingly deliberately vague monetary policy signals from the Fed and dashed hopes on a quick U.S.-China resolution completed a picture that warranted caution.

In the earlier Asian session, the regional market, which may have been pricing the increased confidence that would come with tangible progress towards stability in the region—and one less geopolitical risk to worry about—quickly rebalanced as traders rushed to take advantage of the new price inefficiency.

South Korea’s KOSPI (-1.76%) was the obvious laggard—as the most directly affected by the northern neighbor's political isolation—losing more than double the runner up, Japan’s Nikkei 225 (-0.79%). The won dropped 0.6%.

Global Financial Affairs

On Wednesday, most U.S. stocks ended a volatile session lower for a second day, on concerns that U.S. President Donald Trump would settle for a bad trade deal with China, as Trade Representative Robert Lighthizer warned Congress that only an all-encompassing agreement, requiring structural changes in China, would be acceptable for the country. At the same Congressional hearing, Trump's former lawyer Michael Cohen added to pressure on the president, heightening the focus on his political debacles—including alleged wrongdoings during his 2016 campaign and hush payments.

The S&P 500 slipped 0.05% into the red, with Communication Services (-0.5%) and Healthcare (-0.47%) driving most of the losses, while Industrials (+0.39%), Energy (+0.38%) and Financials (+0.38%) held the line from an even deeper setback.

The Dow Jones Industrial Average dropped 0.28%. The NASDAQ Composite (+0.07%) managed to claw onto positive territory, as did the Russell 2000 (0.16%).

After climbing on risk-off yesterday, yields on 10-year Treasurys subsided. Technically, rates fluctuate within a triangular consolidation, as we use the 50 DMA as the natural upper border.

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