Wednesday, August 9, 2017

Markets sell off on North Korea worries

Dow dropped 50, decliners over advancers 2-1 & NAZ gave back 29.  The MLP index rebounded 4+ to the 285s (after yesterday's big decline) & the REIT index was off pennies at 350.  Junk bond funds were mixed & Treasuries traded higher.  Oil went up & gold advanced (more below).

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil49.41


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Sec of State Rex Tillerson tried to ease concerns the US was gearing for war with North Korea, a day after Pres Trump rattled global markets with his warning that he could unleash “fire and fury” against Kim Jong Un's regime.  “Americans should sleep well at night, have no concerns about this particular rhetoric of the last few days,”  Tillerson told reporters on his plane after a stop in Southeast Asia.  Trump “felt it necessary to issue a very strong statement directed at North Korea,” he said.  Trump's threat reverberated around the world, sparking a sell-off & prompting a wave of criticism even from members of his own political party.  The pres returned to Twitter with a post that said the US nuclear arsenal “is now far stronger and more powerful than ever before.”  He added in a follow-up message that “hopefully we will never have to use this power, but there will never be a time that we are not the most powerful nation in the world!”  The Stoxx Europe 600 Index declined 1%, before the NYSE opened, the largest drop in more than a week.   Tillerson said the US is engaged in a very active diplomatic effort to halt Kim's pursuit of a nuclear weapon that could strike the US mainland.  He added that North Korea should be looking for talks “with the right expectation of what those talks will be about.”

Tillerson Downplays North Korea Threat After Trump Rattles Markets

Worker productivity gains in the US accelerated in Q2 to a pace that's still tepid by historical standards, a Labor Dept report showed.  The measure of nonfarm business employee output per hour increased at 0.9% annualized rate (est. 0.7% rise) after an upwardly revised 0.1% rise in the prior 3 months.  Unit labor costs rose at 0.6% pace (est. 1.1%) after a an upwardly revised 5.4% rate.  Report reflects annual revisions to economy-wide data from Jul 28, including upward revision to hourly compensation in 1Q.  Paltry productivity has been a disappointing characteristic of the current economic expansion that’s managed about 2% growth on average over the past 8 years.  Without more gains in efficiency, the economy's speed limit, the pace at which it can expand without stoking inflation, is reduced.  Weaker output per hour has its roots in less corp investment in equipment & a slower pace of innovation.  Subdued productivity also helps explain why companies have been slow to boost worker pay that would boost the standard of living.  Productivity rose 1.2% from Q2-2016; unit labor costs, which are adjusted for efficiency gains, were down 0.2%  from a year earlier.  Adjusted for inflation, hourly earnings rose at a 1.9% rate last qtr, after increasing at a 2.3% pace in Q1.  Output rose at a 3.4% rate, the fastest since Q1-2015, following a 1.8% gain.  Hours worked rose at a 2.5% pace, the most in more than a year, after a 1.6% gain & compensation for each hour worked rose at a 1.6% annual pace following 5.5%.  The latest rise in productivity compares with the 1.2% average during 2007-2016.

U.S. Productivity Gains Accelerate While Pace Remains Tepid

Gold climbed to the highest since mid-Jun, pushing up mining-company shares amid military tensions between the US & North Korea.  Equities slid & some developed-market gov bonds advanced as Trump threatened North Korea, boosting demand for haven assets.  Gold also climbed after Indian imports of the metal were said to have doubled.  The US North-Korea tensions add to investor angst that has helped push up gold more than 10% this year, even with equities hitting records & the Fed keen to shrink its balance sheet.  Should geopolitical tensions intensify, gold is likely to be in demand as a safe-haven.  Gold futures for Dec climbed 1.3% to $1278 an ounce, an almost 2 month high.  In India, the world's 2nd-largest buyer of gold, Jul imports rose after the arrival of some delayed shipments that were booked ahead of the implementation of a new national goods and services tax.

Gold Rises Along With North Korea Tensions

The stock market advance has come to a halt on North Korea concerns.  All considered, today's decline is mild & the popular stock averages remain near record highs.  However with geopolitical worries running high, stock buyers are going on vacation.  Demand for safe haven investments, starting with gold, continues to be strong.

Dow Jones Industrials


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