News & Analysis

Stocks fall on canceled North Korean summit; OPEC supply worries hit Oil; Gold jumps – weaker USD – renewed trade tensions

May 25, 2018 | Market Updates

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18:30 GBP Second Estimate GDP
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US markets – closed lower on Thursday, news that President Trump will cancel the North Korean summit. The Commerce Department said that it started an investigation into whether automobile imports “threaten to impair the national security” of the U.S. Stocks sold off sharply following the North Korean announcement, with the Dow Jones industrial average dropping more than 280 points at its lows.

The meeting would have been the first face-to-face encounter between a sitting U.S. president and a North Korean leader. “Sadly, based on the tremendous anger and open hostility displayed in your most recent statement, I feel it is inappropriate, at this time, to have this long-planned meeting,” Trump wrote in the letter. The Commerce Department said that it started an investigation into whether automobile imports “threaten to impair the national security” of the United States. “There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry,” Commerce Secretary Wilbur Ross said in a statement. Major indices finished in the red, the Dow Jones dropped 75.05 points – The S&P500 lost 5.53 points and the NASDAQ lost 1.53 points.

Overnight, the 10-year Treasury note fell below its key psychological level of 3 percent.

Europe – markets traded in the red after hearing Trump had cancelled the North Korean summit. New tariff talk and Aryzta earnings miss also kept trader confidence low. Indexes continued their move south, the FTSE -71.70, the DAX -121.75 and the CAC -17.40, at markets close.

The auto sector was the worst performer, down more than 1.8 percent following an announcement from the U.S. that it plans to investigate whether an “abuse of trade tactics” in cars could harm the world’s largest economy. Swiss food company Aryzta dropped to the bottom of the European benchmark after the company reported a 17 percent drop in third-quarter revenues and slashed its earnings outlook for the second time this fiscal year, closing 26% lower!

Oil – lost 1.6% in last night’s trade, OPEC output a key worry for traders. OPEC may decide to increase output to make up for reduced supply from Iran and Venezuela, sources told Reuters. Russian Energy Minister Alexander Novak said production cuts could be eased “softly” if OPEC and non-OPEC countries see the oil market balancing in June, Interfax news agency reported.

“A move to put more oil on the market by Saudi Arabia and Russia would be very bearish for prices. The mere contemplation of it has hit oil prices this week,” said John Kilduff, a partner at Again Capital LLC in New York.

Forex – mixed night for the USD as it fell to Risk, JPY and Gold but rallied to a weaker CAD. “In light of the dollar’s impressive rally now that stretches back to mid-April, the minutes provided a bit of an excuse to take some money off the table ahead of the holiday weekend here,” said Esiner. The USDJPY hit hard by further selling lost another 83 pips trading back down to 109.20. Just three day’s ago buyers where tested 111.38.

Risk recovered on Thursday, the EUR, AUD and GBP all closed higher the USD. Retail sales in the UK smashed expectations coming in at 1.6%. The cable did rally by 80 pips but closed 38 pips higher. The EURUSD added 26 pips and the Aussie closed 19 pips higher. Risk finished lower to the JPY but closed above new low’s signs could be starting to build that the selling could be becoming exhausted. Gold was last night big mover adding $11 to close back above 1300. A weaker USD and a flight to safety saw strong demand for the yellow metal. 1302.35 is showing resistance from last night into this morning for buyers.

Good trading from Eightcap.

Sources; CNBC All times are AEST

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