North Korea tensions weigh on global equities

The US stock market retreated last week and the ICE US dollar index fell as geopolitical tensions rose after President Trump warned North Korea of dire consequences if it continues threatening US with missile strikes. 1 The SP 500 ended the week 1.4% lower and the US dollar index lost 0.4% for the week. US stocks inched higher on Monday. St. Louis Fed President James Bullard, a nonvoting member of Federal Open Market Committee, said the current level of short-term rates was appropriate. Minneapolis Fed President Neel Kashkari, a voting member, said he would continue to doubt claims of worker shortages if wages did not increase. The dollar edged lower. S&P 500 closed 0.2% lower on Tuesday after Trump said North Korea would be met with “fire and fury like the world has never seen” should it continue to threaten the US following reports North Korea has successfully miniaturized a nuclear warhead that could fit inside a missile. The dollar strengthened 0.2%. US markets ended lower on Wednesday weighed by disappointing quarterly results despite a report US worker productivity rose at annual rate of 0.9% in the second quarter from 0.1% in the first quarter.

The US stock market fell sharply on Thursday as a North Korean army commander said “sound dialogue” wasn’t possible with President Trump and “only absolute force can work on him.” 2 New York Fed President William Dudley, a voting member of FOMC, said inflation would have trouble hitting the 2% annual target for six to ten months due to transitory factors but the labor market tightness and weaker dollar could support higher inflation. The ICE dollar index slipped 0.1%. The US stock market recovered from previous day’s sharp decline on Friday. 3 The dollar index fell 0.3% after report consumer price index rose just 0.1% in July adding to concerns whether inflation will rise to Fed’s 2% target to justify a third rate hike this year. The most significant events this week are: July retail sales data on Tuesday; release of Federal Reserve policy meeting minutes on Wednesday; and Canadian inflation and retail sales report as well as US consumer sentiment report on Friday. It is widely expected the minutes may provide more details on Fed’s plans to start unwinding its $4.5 billion balance sheet in September.