Markets Slip Over Geopolitical Tensions

By Joyce Yu

Global equity markets are weighted down by geopolitical tensions following North Korea leader Kim Jong-un’s responses to US President Trump’s speech at the United Nations. U.S. stocks opened lower on Friday, and European markets slipped in early trading.

In response to Mr. Trump’s speech to the United Nations General Assembly threatening to “totally destroy” North Korea, Mr. Kim vowed to take the “highest level of hard-line countermeasure in history”. This could mean testing a hydrogen bomb in the Pacific Ocean, according to reports from South Korea.

The latest spike in tensions bolstered price of haven assets such as gold, which rebounded from a four-week low on Friday.

Wall Street slipped on Thursday as investors braced for a third interest rate hike this year. The Dow Jones industrial average declined by 0.2%. The S&P 500 and Nasdaq dipped by 0.3% and 0.5%, respectively. Shares of Apple fell on worries about demand for its latest smartphone.

President of the San Francisco Federal Reserve John Williams said on Friday he does not expect any market turbulence as the Fed starts unwinding its balance sheet.

He told reporters in Zurich, “I don’t anticipate any sudden or large effects on rates or spreads or things like that as we normalize.”

“Obviously we’ve talked about this endlessly. We’ve announced it and the markets have taken totally taken this in stride. But it’s still an open question as we actually implement this next month and over the next several years – ‘how will markets react?’ We’ll obviously be following that very carefully”, the Reuters reported.

“My view, based on a lot of research people have done including my own work on this, is that the normal Federal funds rate is likely to be around 2.5 percent,” Williams said.

Separately, the markets will be watching closely events in U.K. and Germany as British Prime Minister Theresa May is set to give a speech about Brexit and German holds its election on Sunday.

May, who is likely to commit Britain to continue paying into the European Union budget, will try to get faltering Brexit negotiations back on track, according to multiple British media reports. And over in Germany, Opinion polls show Merkel is on track to win a fourth term.

All eyes will be on oil prices as OPEC oil ministers meet in Vienna. At the meeting, they will decide whether to extend an agreement to curb production, which is due to expire in March 2018, or to sit tight to monitor the oil prices in the coming months.

U.S. crude futures are currently trading around $50 per barrel.