US MARKET WRAP – North Korea & US CPI Push Fed Voters To The Background

Geopolitical worry continued to come to the fore as we reached the end of the week. US President Donald Trump stated that US “military solutions are now fully in place, locked and loaded, should North Korea act unwisely. Hopefully Kim Jong Un will find another path!” Although China attempted to distil the situation, suggesting that it had generated a joint de-escalation plan with Russia. We didn’t have to wait long for a response, as unverified reports hit, suggesting that North Korea has moved missiles around the country. A North Korean government spokesperson also stated that access to nukes was a 'legitimate step for the country’s self-defence.' The North Korean press then ran a story which suggested that the nation’s authorities have dispatched emergency standby orders to the leaders of the ruling Workers’ Party committees and civil defence units.

Fed voters Kashkari and Kaplan stuck to script and did little to move markets, as both stressed the need for a ‘wait and see’ approach regarding interest rates.

The major US indices were higher in the wake of softer than expected US CPI data, although the Dow & S&P 500 gave up a chunk of their modest gains as North Korean worry weighed on stocks into the close. The S&P 500 closed up 0.13% at 2,441.38, the NASDAQ closed up 0.75% at 5,831.53, and the Dow closed up 0.07% at 21,858.32.

Today's unimpressive US CPI print weighed on the greenback, although trade in the immediate aftermath of the release became choppy as Russia highlighted that it had formulated joint plans with China to de-escalate the US-North Korean tensions. The DXY did however resume its grind lower, with the USD closing out the day around its worst levels against most of the majors.

Fixed income followed a similar pattern to the USD, with the North Korean tensions pushing bonds back to near-session highs on the close. The poor CPI release has left Fed Fund futures pricing a 35.9% chance of the FOMC delivering a December rate hike. Sep’17 10y T-note futures settled at 126.26, up 8 ticks.

Oil began to trade lower as the IEA suggested that OPEC crude supply rose by 230,000 bpd in July (representing YtD highs in production terms), while it believes that OPEC’s compliance to the production deal stood at a meagre 75% In July. However, several bullish catalysts pushed crude higher, as Shell said that it’s Nigerian facilities were halted following a security threat and it became apparent that Pemex was fighting a fire on its Sinaloa pipeline. Crude even maintained a bid after active US oil rigs rose in the latest Baker Hughes rig count (although total rigs fell owing to gas drilling rigs). WTI settled at USD 48.82/bbl, up USD 0.23.

11 Aug 2017 - 21:00- Fixed IncomeData- Source: RANsquawk