Global stocks selloff stops at Wall Street

  • WALL ST WEEK AHEAD
- Reuters, NEW YORK

Aug 13, 2017-Wall Street put a floor under global equities on Friday after a weak inflation reading brought investors back into US stocks even as tensions between the United States and North Korea continued to escalate, though the geopolitical fears still drove safe-haven buying of gold and the yen. 

A small rise in a measure of US consumer prices pointed to benign inflation that could make the Federal Reserve cautious about raising interest rates again this year, which would be favourable to equity investors.

The hope that the Fed will have to slow its rate-hike path appeared to stop, at least for now, the near $1-trillion loss in world stocks valuations this week triggered by the war of words between Pyongyang and Washington.

“The slight bias to the upside (in stocks) is a result of the CPI number. The market is interpreting it as lowering the odds of the Fed raising rates in December,” said Keith Lerner, chief market strategist at SunTrust Advisory Services in Atlanta.

Reuters data show a 22 percent perceived chance for a rate 

hike after the Fed’s December meeting.

Japanese markets were closed for a holiday, but the tense mood dragged Asian shares lower and an MSCI index of stocks across the globe .MIWD00000PUS posted its largest weekly drop since the week before Donald Trump won the US presidential election in November. Trump issued a new warning to Pyongyang on Friday, saying in a tweet: “Military solutions are now fully in place, locked and loaded, should North Korea act unwisely.”

North Korea had responded to Trump’s previous promise to unleash “fire and fury” with a threat to land missiles near the US Pacific territory of Guam.

The Dow and S&P 500 inched higher on the day but they both posted their largest weekly percentage drops since late March.

“There’s not a great incentive to buy big,” said Lerner of SunTrust Advisory. “You’re less than 2 percent off the high for the S&P heading into a weekend where uncertainty with North Korea still lingers.”

The Dow Jones Industrial Average .DJI rose 14.31 points, or 0.07 percent, to end at 21,858.32, the S&P 500 .SPX gained 3.11 points, or 0.13 percent, to 2,441.32 and the Nasdaq Composite .IXIC added 39.68 points, or 0.64 percent, to 6,256.56.

The pan-European FTSEurofirst 300 index .FTEU3 lost 1.01 percent and MSCI’s gauge of stocks across the globe .MIWD00000PUS shed 0.26 percent for a weekly loss of 1.6 percent, the largest since the week to Nov. 4. Emerging market stocks .MSCIEF lost 1.27 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS closed 1.47 percent lower. South Korea’s KOSPI .KS11 fell 1.7 percent on Friday to its lowest since May 24, but its losses for the week were a relatively modest 3.2 percent.

“Pretty remarkable, perhaps even extraordinary, considering,” said Tim Ash, strategist at fund manager BlueBay.

A Reuters Datastream index of more than 7,000 stocks across the globe saw its market capitalization drop from a record high $61.36 trillion on Monday to $60.43 trillion at the close on Thursday. Many world stock markets have hit record or multi-year highs in recent weeks, leaving them vulnerable to a selloff, and the tensions over North Korea proved to be the trigger.

The yen on Friday added to a strong weekly rally against the dollar of close to 1.5 percent, hitting its highest versus the greenback in almost four months, at 108.73 yen.

The yen tends to benefit during times of geopolitical or financial stress as Japan is the world’s biggest creditor nation and there is an assumption that Japanese investors will repatriate funds should a crisis materialize.

The Korean won KRW=KFTC continued to fall versus the dollar, down 0.13 percent to 1,143.5 on Friday for a 1.6 percent decline on the week. 

The dollar was further weighed down on Friday by the soft US inflation data.

Published: 13-08-2017 09:09

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