"From Nukes To Terrorism": Battered Investors Flee Risk For Safety Of Bonds And Gold

Tyler Durden's picture

The global risk-off mood accelerated overnight on Trump "stability concerns", coupled with fallout from the Spain terrorist attack and lingering North Korea tensions, even if the VIX is off its latest highs, trading just above 15. Investors fled into German and U.S. Treasury bonds and bought gold for the third day in a row, as the appeal of such top-notch assets grew further due to a deadly attack that killed at least 13 people in Barcelona.

"In a week where we started by worrying about nuclear war, markets have quickly moved on from this, with yesterday's weak session more of a response to fears that Mr Trump's strategy for the economy and business is falling apart and later the terrible terrorist attack in Barcelona," is how DB's Jim Reid summarized the week's psychedelic events.

Concerns that Trump’s stimulus is in peril spiked following speculation that his top economic advisor, former Goldman COO Gary Cohn, was set to resign roiled markets on Thursday until reports that he’d opted to stay on board steadied the ship, however heightened terror fears added to the risk off sentiment after at least 13 people died when a van plowed into pedestrians in Barcelona. The terror attack was a reminder of lingering geopolitical risks, with nerves still raw after last week’s escalation of tensions on the Korean peninsula. 

USD/JPY dropped below 109.00 and EUR/JPY 128.00; EUR/USD and GBP/USD both run upside stops as USD weakens across the board. Core fixed income markets rally, curves bull flatten with 10Y bund yield falling below 40bps. Spot gold hits YTD high just below $1300/oz, while a strong close for Dalian iron ore futures once again lifts China industrial metals.

ING Bank analysts predicted the dollar would remain pinned near current levels, at the expense of the yen. "Tail risks such as geopolitics, protectionism and the unwind of easy central bank money all provide valid reasons to remain cautious in chasing risk," they told clients. "Dollar/yen continues to capture this nervousness and could move down towards the 109.00 level."

European stocks tumbled, with Spanish shares leading losses, as two Spanish terrorist incidents added to investor worries about U.S. policy chaos under the Trump administration.  The Stoxx Europe 600 Index dropped 1% percent, reducing the weekly rebound to just 0.3%. In the US, S&P futures were largely flat while Asian dropped with the dollar on rising US political turmoil. Gold, yen and oil gained despite another weekly increase in US shale production. Credit spreads widen, iTraxx Crossover touches widest level seen during North Korea troubles.

Travel and hospitality shares led the 1% drop in the Stoxx Europe 600 along with banks, while industries across the board were caught in the downturn. Spain’s IBEX index dropped more than 1 percent. Equities fell from Tokyo to Sydney earlier after the S&P 500 Index on Thursday tumbled 1.5 percent, its second-biggest drop for 2017. The VIX soared higher for the second time in one week, while core bonds across the euro region advanced.

In Asia, Japan’s Topix fell 1.1% at the close, down 1.2% over the week, while Australia’s S&P/500 Index ended 0.6% lower. The seemingly impervious to anything, including nuclear war Kospi index ended barely changed 0.1 percent lower. Hong Kong’s Hang Seng Index fell 0.6%.  The MSCI Asia Pacific Index lost 0.5 percent, paring gains for the week.

“The terror attacks in the U.S. and Spain just add to all the other geopolitical mess,” Simon Quijano-Evans, a strategist at London-based Legal & General Investment Management Ltd., said in a note to clients. “At some stage that is likely to culminate into a more extreme market reaction.”

In rates, yields have fallen in recent days following the ECB comments and amid the dash for defensive assets, with 10-year Bunds at a one-week low of 0.41 percent while 10-year Treasuries traded just off one-week lows hit on Thursday; 10Y Gilts fell one basis point to 1.075%. The turmoil also benefited gold, with spot prices for the metal rising 0.4 percent to the highest in more than two months and on track for its second week of gains.

Brent crude futures rose 0.35 percent, rising off three-week lows hit on Thursday as the dollar continued to weaken and signs appeared that supply is becoming tighter in the world's biggest energy consumer, the United States.

Today's data include August Michigan consumer sentiment. Deere, Estee Lauder, Foot Locker and Ascendis Pharma are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures down 0.01% to 2,427.25
  • STOXX Europe 600 down 0.9% to 373.47
  • MXAP down 0.5% to 159.06
  • MXAPJ down 0.6% to 522.83
  • Nikkei down 1.2% to 19,470.41
  • Topix down 1.1% to 1,597.36
  • Hang Seng Index down 1.1% to 27,047.57
  • Shanghai Composite up 0.01% to 3,268.72
  • Sensex down 1.1% to 31,438.75
  • Australia S&P/ASX 200 down 0.6% to 5,747.11
  • Kospi down 0.1% to 2,358.37
  • Gold spot up 0.4% to $1,293.58
  • U.S. Dollar Index down 0.07% to 93.55
  • German 10Y yield fell 1.9 bps to 0.407%
  • Euro up 0.1% to $1.1738
  • Brent Futures up 0.3% to $51.17/bbl
  • Italian 10Y yield fell 1.8 bps to 1.737%
  • Spanish 10Y yield rose 10.4 bps to 1.543%

Top Overnight News

  • European Union officials accepted the U.K.’s request to delay the start of the next round of Brexit talks to enable British officials to have time off on Britain’s Aug. 28 “summer bank holiday,” according to two people familiar with the plans
  • Yellen speech at Jackson Hole confirmed for Friday, Aug. 25 at 10 a.m. New York time, topic will be financial stability; Draghi speech same day at 3 p.m. New York time
  • Trump: advisory council for infrastructure will not move forward, according to a White House spokesperson
  • China govt. to further limit outbound investments in foreign property, hotels, sports and gambling
  • Barcelona: five suspected terrorists killed by police; Islamic State claims responsibility
  • Five suspected terrorists killed by police following Barcelona attack
  • China home prices rise in 56 cities vs 60 prev as property market cools
  • Energy Capital Is Said to Plan $5.5 Billion Calpine Takeover
  • Ping An Undervalued Even After 50%-Plus Gain, President Says
  • Gap’s Old Navy Chain Keeps Retailer’s Turnaround Hopes Alive
  • Roche, Sanofi May Move on House Democrats MS Drug Price Probe
  • Guangzhou Auto Says No Plans to Buy Fiat Chrysler: Reuters
  • Fed’s Kashkari repeats there’s no rush to raise rates;
  • Kaplan urges
    patience, would like ’more progress on inflation’ before next hike
  • JPMorgan Hires Chen From Deutsche Bank For Senior China Role
  • James Murdoch to Donate $1m to Anti-Defamation League: Yahoo
  • July U.S. Total Video Game Sales Up 19% to $588m: NPD
  • Gap CEO Says Gap Brand ‘Stable and Steady,’ Not Yet Satisfying
  • Bunge Expands Soy Crush in Brazil, Cites Long-Term Positive View
  • Holidays on Hold as Bond Market Defies Usual August Slowdown
  • Quants Deliver Swift 10% Gain on Iron Ore From New BNP Model
  • Five Suspected Terrorists Killed After Twin Attacks on Spain
  • Elliott Is Said to Signal Backing for $6.3 Billion Stada Buyout
  • Merkel Jeered by Immigration Foes in Biggest Campaign Unrest Yet
  • Applied Materials Machines in Demand as Data Use Explodes
  • ROST Boosts FY EPS View, Midpoint Beats Est.; Shares Rise 8.4%

Bulletin Headline Summary from RanSquawk

  • European equities enter the North America crossover amid yesterday's terror incident and further turmoil in Washington
  • JPY has been the main beneficiary in FX markets with macro newsflow otherwise relatively light
  • Looking ahead, highlights include: Canadian CPI, Uni. Of Michigan and Kaplan

In Asian trading, all major Asia-Pac indices traded in negative territory as the risk averse tone triggered by terror incidents in Spain and resignation rumours related to Trump's chief economic advisor Cohn, rolled over to the region. ASX 200 (-0.56%) dampened from the open with the largest weighted financials sector leading the declines as all big 4 banks traded with firm losses, while Nikkei 225 (-1.18%) exporters felt the brunt of the safe-haven flows into FY.  Hang Seng (-1.08%) and Shanghai Comp. (+0.01%) also mirrored the global risk averse tone, although downside was stemmed in the mainland after the PBoC switched to net weekly injection in its operations vs. last week's drain and as participants mulled over the latest property price data which suggested the effectiveness of curbs to cool the over rampant sector. 10yr JGBs were marginally higher with mild support seen amid the negative backdrop in global equities, while the BoJ were also in the market for JPY 1.05fin of JGBs with maturities of up to 10yrs.

Top Asian News

  • Malaysia GDP Growth Beats Forecasts as Economy Expands 5.8%
  • After Alibaba Bonanza, Manager Said to Plan New Asia Hedge Fund
  • Company Founders Find Fighting Back Has a Cost in India
  • Japan Stocks to Watch: JT, Kyoei Steel, NGK Insulators, Tosoh
  • Iron Ore in China Ends Week With Bang as Demand Seen Holding Up
  • Ping An’s Tech Push Undervalued by Investors, Ren Says: Q&A
  • Conflict With Infosys’ Founders Prompts CEO Sikka to Quit
  • U.S. Equities See Further Outflows, Europe Sees Inflows: BofAML
  • Falling House Prices in Shenzhen Don’t Bode Well for Steel
  • Kingsgate Surges as Thailand Lifts Gold Mine’s Suspension

Across European markets sentiment has soured with the Eurostoxx falling over 1%, sector wise the losses are broad based with travel stocks among the worst performers following yesterday's terror attacks in Barcelona. Financials also taking a hit this morning after reports that banks are being sued by the FDIC over the Libor-rigging scandal. Flight to quality flow keeping EGBs afloat, the German curve is slightly bull flattening while the 10Y yield is approaching 0.4%. Peripheral debt spreads wider with the Italian 10Y yield edging higher.

Top European News

  • Commerzbank Early Retirement Offers Accepted by Almost 40%
  • City of London Only Sign of Brexit Weakness, Kingspan CEO Says
  • Straumann Stopped Share Sale as Investors Wanted Bigger Discount
  • Sistema Requests Break in Hearing After New Documents Submitted
  • Czechs Move to Strip Election Favorite of Immunity Before Vote

In currenices, JPY firmer across the board amid the fall seen across equity markets and as such USD/JPY is eying 109.00 to the downside, while support in the short term is situated at 108.70-80. USD softer against its major counterparts, EUR and GBP higher by 0.25% with the later making a move to breach 1.29. However, the backdrop of Brexit continues to weigh on GBP/USD and curb the upside. CAD: Today will see the release of the Canadian CPI figures where expectations are for a slight pick-up in inflation. Although, a miss on this could see USD/CAD make a push through 1.27.

In commodities, safe-haven commodities supported with gold prices moving to intra-day highs. Elsewhere, the softer USD also sees crude prices ticking up as Brent crude breaches USD 51. Another day of gains for base metals, Zinc rising near 2%.

Looking at the day ahead, in the US, the University of Michigan sentiment index (94 expected) will be released. Further, the Fed’s Kaplan will speak again today.

US Event Calendar

  • 10am: U. of Mich. Sentiment, est. 94, prior 93.4; U. of Mich. Current Conditions, est. 112.9, prior 113.4; U. of Mich. Expectations, est. 81.5, prior 80.5
    • U. of Mich. 1 Yr Inflation, prior 2.6%; U. of Mich. 5-10 Yr Inflation, prior 2.6%

DB's Jim Reid concludes the overnight wrap

In a week where we started by worrying about nuclear war, markets have quickly moved on from this with yesterday's weak session more of a response to fears that Mr Trump's strategy for the economy and business is falling apart and later the terrible terrorist attack in Barcelona.

The S&P 500 (-1.54%) fell sharply for its 2nd worst day of the year with the VIX surging 32.5% to 15.55, the fifth highest close of the year. We've now gone through last week's 'fire and fury' lows. The hits kept coming yesterday with speculation that Trump's key economic advisor Gary Cohn was about to resign sending an early US session shock to markets. He is seen as the glue holding Trump's pro-business agenda together. The fears are that if he goes you take a further step back from tax cuts and deregulation. Notably the VIX moved from just over 12 to nearly 13.74 in 25mins as the news swept through the markets. The story was denied and markets calmed a little but sold off sharply into the close as the shocking news broke from Barcelona that terrorists killed 13 people as a vehicle rammed into pedestrians.

This morning in Asia, markets are following the negative leads from the US and are lower. The Nikkei (-1.33%), Hang Seng (-0.71%) and Chinese bourses (c.-0.2%) are all down. Elsewhere, the annual military drills between US and South Korean troops starting Monday seem to be having little impact on the markets, with the Kospi down 0.20%.

Now onto the ECB minutes. They noted that “concerns were expressed about the risk of the (Euro) overshooting in the future” and that policy makers discussed making “incremental” changes to their forward guidance. Later on, Draghi told reporters that the incoming data confirmed the strength of the Eurozone economy, but on inflation “we need to be persistent and patient, because we’re not there yet…” and “a very substantial degree of monetary accommodation is still needed for underlying inflation pressure to gradually build up”. Members have retained their pledge to the asset purchase program and Draghi noted later that “the last thing that the council may want is an unwanted tightening of the financing conditions”.

Given the focus on the Euro and Draghi, DB’s Mark Wall has just published a report highlighting the spectrum of Draghi’s comments on the exchange rate since becoming the President of the ECB. Draghi will speak at the Jackson Hole meeting but is not now expected to set expectations for the timing of a decision on QE. That said, Mark argues that Draghi’s view on the macro should be no more cautious than he was back at the July ECB council meeting.  Across the pond, the Fed has confirmed that Yellen will speak on the topic of financial stability at next week's Jackson Hole symposium.

Back to the market’s performance yesterday. US equities have all weakened, with the S&P (-1.54%), the Dow (-1.24%) and the Nasdaq (-1.94% and marking the third largest daily decline in 2017). Within the S&P, all sectors were in the red, with the financials hit harder (BAC -2.27%; WFC -1.69%), in part as nervousness around Cohn hit the sector as he is expected to help deliver tax cuts, an easing in bank regulations and drive bond yields higher. European markets were also down, the Stoxx 600 fell -0.6%, with all sectors excluding utilities in the red. Similarly, financials were also more impacted, with large banks down -1.5% to -2.5%. Across the region, the DAX (-0.49%), FTSE 100 (-0.61%), CAC (-0.58%) and the Italian FTSE MIB (-0.89%) all fell.

Bond yields also fell in both US and Europe, with the UST10y down 4bps and core European yields down 2bps. Across the region, the decline in bond yields were fairly uniform at the long end of the curve, with bunds (2Y: +1bp; 10Y: -2bps), Gilts (2Y: -1bp; 10Y: -2bps) and OATs (2Y: +1bp; 10Y: -2bps) all lower i yield even if at the 2y part of the curve, changes were a bit more mixed, but little changed. This morning, UST10y has reversed a little, with yields back up 1.6bps.

Turning to currencies, earlier in the day the USD had strengthened against the euro, with EUR/USD down as much as -1%, but the aforementioned developments in the US saw the dollar retreat and allow the Euro to close down -0.4% for the day. Elsewhere, Euro/Sterling and Sterling/USD both dipped 0.2%, while the US dollar index finished +0.1% higher for the day. In commodities, WTI pared back from three consecutive days of losses to be up +0.7% yesterday. Precious metals were little changed (Gold +0.4%; Silver -0.5%), while industrial metals increased on the back of traders speculation of tighter supply (Copper +2.3%, Zinc +4.6%, Aluminium +2.5%), although some of the gains were offset this morning.

Away from the markets and the Gary Cohn story, tension continues to grow in US politics and may add to doubts on Trump’s pro-growth reforms. Republican senator Corker has told reporters that “..the president needs to….move away beyond himself…move to a place where daily he’s waking up thinking about what is best for the nation.” Further, another Republican senator Scott said “what we want to see from our president is clarity and moral authority.” Elsewhere, Trump was also busy himself, twitting “publicity seeking (Republican senator) Graham falsely stated that I said….such a disgusting lie.” and that Republican senator Flake is “toxic” and a “non-factor in the senate”.

Elsewhere, the German Constitutional Court has raised concerns that ECB’s public sector purchase program (PSPP) might violate the prohibition of monetary financing in EU law. The highest German court has referred the complaint to the European Court of Justice (ECJ) for "preliminary ruling". DB’s Boettcher does not expect an ECJ decision on the motion before Q1 2018. This could push a final verdict by the GCC into late 2018, thus into a period when we expect the ECB to have progressed on winding down QE.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, data was mixed but broadly in line. The July industrial production was a tad lower at 0.2% mom (vs. 0.3% expected), whilst manufacturing output fell 0.1% mom (vs. 0.2% expected), with the 3.6% mom decline in auto production (the third consecutive monthly decline) being the biggest weight in the month. Elsewhere, the Philadelphia Fed business index was higher than expected at 18.9 (vs. 18) and the July conference board leading index was in line at 0.3%. Employment indicators remain solid, with initial jobless claims at 232k (vs. 240k) and continuing claims at 1.953m (vs. 1.955m). Across the pond, UK’s July retail sales was higher than expectations at 0.5% mom for exauto (vs. 0.1% expected) and 1.5% yoy (vs. 1.2%). Elsewhere, the Eurozone’s July inflation was in line at -0.5% mom, while the final inflation reading was unchanged at 1.2% yoy (core inflation). The French unemployment rate edged down to 9.2% in 2Q, meeting market expectations.

Looking at the day ahead, the German PPI’s will be out as this note is published, then the Eurozone’s June current account stats and construction output data are due. In the US, the University of Michigan sentiment index (94 expected) will be released. Further, the Fed’s Kaplan will speak again today.

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jamesmmu's picture
Hindenburg Omens Flashing Major Warning Signal for the Stock Market

http://investmentwatchblog.com/hindenburg-omens-flashing-major-warning-s...

Cluster_Frak's picture

i wondered if correction will be triggered by an attempt on Trump's life.

VinceFostersGhost's picture

 

 

Remember it's attackers.......NOT.......terrorists.

 

At least that's what I got from CNN.......on my walk through the airport.

Handful of Dust's picture

BLM killing people, islamic rapefugees killing people and antifa beating people up across the country is NOT terrorism.

 

Obama calls it, "Workplace violence."

VD's picture

futs pleasantly in the green -- Tylers fucking shilling.

Bay of Pigs's picture

Hindenberg Omen? There's a blast from the past.

Oh the humanity!

Cash2Riches's picture

We are currently in an extremely dangerous period of time, either things will completely calm down, or things will boil over and this powder keg will explode. If the latter occurs, we will see the global economy tank and it will be decades before stocks recover. Hang on, its going to be a bumpy ride.

Cluster_Frak's picture

monkey hammer must be on vacation in the dindus land.

Sky flyer's picture

Please let's see one good 1% down day on a Friday. It's been so long I forgot what it feels like. Awaiting Trumps tweets.

Money_for_Nothing's picture

Lets see someone lose their ass with a bad bet. That would be fun. Especially if it was a primary dealer. I might think the PPT was was only rigging the market 99.88% if that happened. If the PPT wants to send a message they have to sacrifice-a-goat.

nmewn's picture

His name was Imran Awan ;-)

buzzsaw99's picture

There is no spoon.  [/Spoon Boy]

Cluster_Frak's picture

There are only overbreeding spoon fed minorities. 

BritBob's picture

Oil

Falklands Oil

By a ruling of the UN, Argentina will extend its maritime platform (Politica Argentina) ; New map of the maritime platform reaffirms the sovereignty of Malvinas with UN endorsement (ElCronista); Argentina enlarges its territory 35%, with a UN endorsement ...(La Capital).

 

But what is the truth...

Argentina's Continental Shelf Claims and The UN CLCA Commission (1 page):-

https://www.academia.edu/33898951/Argentinas_Continental_Shelf_Claims_-The_UN_CLCS_Commission

 

VinceFostersGhost's picture

 

 

Bob.....again.....no one gives a rats ass about the Falklands.

 

 

No one Bob.

buzzsaw99's picture

bob is like a goldman sachs muppet front running algo.  it doesn't care that we don't care it only matters that he cares.

Money_for_Nothing's picture

to continue talking about a rats ass...the world has an oil glut. No one in their right mind would invest in Argentina. Argentina won't care about the Falklands again if the world pulls out of The Great Recession soon.

You want investment in Argentina? Then find gold there in quantities and ease of access to put South Africa to shame.

Argentina destroyed their international beef business. Argentina destroyed their international soybean business. The looted a social security system that had a solid foundation.

The only way to do sound business with Argentina is US-dollars-on-delivery. Argentina has spent forty plus years destroying their reputation as a place to do business with. Argentina does have brave warriors and hardworking people. But...Argentina politicians seem to care very little about the welfare of the citizens of Argentina. Brave warriors aren't enough if the other side has better leadership.

Latitude25's picture

Greenspasm says bonds are not safe and in fact a huge bubble ready to pop.  But you already knew that.

GodHelpAmerica's picture

"The safety of bonds.." Bonds that are priced in fiat currencies which are being debauched.

Make no mistake, holding sovereign bonds here is a game of hot potato--i.e. it is a short term TRADE. In general, Long term holders of bonds will lose more wealth than those holding Equities, and especially relative to those holding gold/silver when the MO of the world's central banks is to inflate away the debt via the understating of persistent moderate inflation, better known as financial repression.

The Count's picture

In a true SHTF situation the most valuable items are ones you would never consider: BIC lighters, canned beans, ammunition, gold coins are only good for the hardest to barter items like medicine. Bonds are not even suitable to wipe your butt with. Bitcoins? Poof! No power, not bitcoins.

Blue Dog's picture

You can't have barter when 90% of the population doesn't have food.

ThrowAwayYourTV's picture

Things are slowing down. After setting records for two years we are in the bag so far this year. July truely sucked, Aug has been better but not much.

 

ItsAllBollocks's picture

Everything that was is no longer.

enough is enough

pc_babe's picture

pathetic LIBTARD press...

Yesterday: Obama's rally is reaching new highs.

Today: Trump's market is collapsing.

Hkan's picture

So whats on the menue this week:

Monday: yellowstone is waking up

Tuesday: nuklear war

Wednesday: Financial crash

Thursday: sun storm shutting down all electricity

Frisday: meteroit crash.

Saturday: having a whiskey....

Sunday: time off

Busy week.....now working with forcast up comming week...

JPMorgan's picture

Why now? this shit has been happening for years, it's nothing new.

 

Manipulism's picture

Solar eclipse is the magic word

G-R-U-N-T's picture

Really, a flight to bonds!!! Governments worldwide, especially Europe are in massive debt turmoil as they welcome economic refugees in destroying their own cultural traditional norms while increasing welfare debt, sorry investing in so much instability I think not. Sorry, but capital will move into assets. Dow 30-40K!

moman's picture

'Dow 30-40K! '  ............loaf of bread = 150.00