Trading Desk Notes - August 12Submitted by Polar Futures Group on August 11th, 2017
Stock markets: Reuters estimates that global stock markets lost over $1 Trillion (1.3%) in value this week as rising tensions between American and North Korea caused prices to fall. The benchmark S&P 500 Index hit All Time Highs on Tuesday but Friday's close was the lowest in over a month, creating a Weekly Key Reversal Down on the charts.
Years of accommodative Central Bank policies boosted stock markets around the world to higher and higher levels while ultra-low interest rates forced investors to "Reach For Yield." Volatility measures across asset classes fell to historically ultra-low levels. Global stock markets were clearly not prepared for this week's rising tensions.
Markets have begun to price in a fundamental change in how American may have to deal with North Korea. Previously America had tried sanctions and diplomacy but recent assessments that North Korea may be able to strike the continental United States with a nuclear missile have raised the odds of a military response.
Trading financial markets on geopolitical assessments is difficult but we believe the current situation offers a huge asymmetrical risk profile. Increased tensions could see markets go dramatically "risk off" very aggressively while a downgrading of tensions would produce the opposite embrace of "risk on" but we believe the rally would not be to the same degree.
Gold rallied ~$40 from Tuesday's lows creating a Weekly Key Reversal Up on the charts. Gold is now up 4 of the last 5 weeks and up ~$85 from July's lows and very close to its best levels of the year.
The US Dollar Index bounced back a bit last week but fell this week to register its lowest weekly close in over a year.
The Canadian Dollar hit a 2 year high in July but has closed lower the past 2 weeks, now down ~1 ½ cents from the July highs.
WTI traded briefly above $50 on 2 days this month, but each time fell back quickly. Price action the past 2 weeks has been stuck in a narrow range between $48.50 and $49.50.