North Korea tensions triggered a mass exodus from global equities last week, with the S&P 500 and Dow Jones Industrial Average posting their second-biggest declines of the year.
Stocks Drop, Volatility Spikes
U.S. stocks edged higher on Friday, but that wasn’t enough to offset large weekly declines. The large-cap S&P 500 Index fell 1.4%. The Dow Jones Industrial Average declined more than 1% over the previous five days. Both indexes recorded their second-worst weekly performances of the year.
The Nasdaq Composite Index outperformed, rising 0.6% on Friday, but still closed out its third-worst weekly performance of 2017.
A measure of implied volatility known as the CBOE VIX spiked 55% last week. On Thursday, the fear gauge closed at 16.04, which was the highest since the November presidential election. The VIX normally trades inversely with the S&P 500.
The Flight to Safe Havens
Geopolitical risks drove investors into the safety of precious metals and other haven assets last week. Gold futures for December delivery approached $1,300.00 a troy ounce for the first time in more than two months. Bullion prices were little changed Monday, but came within $3.60 of the critical $1,300.00 milestone.
Silver prices rose dramatically, with the September futures contract closing at more than two-month highs. The grey metal tacked on 5% for the week, reducing its discount to bullion to 75.66.
Cryptocurrencies, which are being increasingly viewed as haven assets, resumed their uptrend over the weekend. Bitcoin (BTC/USD) crossed above $4,000.00 for the first time ever, while ethereum (ETH/USD) continued to trade above $300.00.
U.S.-North Korea Rhetoric Escalates
In another act of defiance, North Korea’s state-run news agency said leader Kim Jong Un’s army is “capable of fighting any war the U.S. wants.” The comments were made in a Saturday editorial that also states the army is “on the standby to launch fire into its mainland.”
The Trump administration has taken an entirely different approach, with the Pentagon and State Department attempting to soothe fears about imminent war. In an op-ed that appeared on Sunday, the heads of the Defense and State departments said the Trump administration is applying a “peaceful pressure campaign” on Pyongyang.
Those comments are in stark contrast to President Trump’s assertion that North Korea could expect “fire and fury” should it continue to provoke the world’s most powerful country.
The Week Ahead
The economic calendar features a whirlwind of market-moving events this week. German GDP, British inflation and U.S. retail sales will headline an active Tuesday session.
On Wednesday, the European Commission’s statistical agency will report on second-quarter GDP. In the United States the Federal Reserve will release the minutes of last month’s Federal Open Market Committee (FOMC) meeting.
Thursday’s session features Australian employment, British retail sales and final July CPI figures from the Eurozone.
The final session of the week features Canadian inflation data.