Global trends in risk appetite have dominated Market moves during the week with a particular focus on North Korea as aggressive rhetoric between the US and Pyongyang regime intensified.

Greed versus fear in action

Global asset prices are always influenced strongly by the balance between greed and fear. When an asset price is rising, there is a strong temptation to buy in order to avoid missing out on further gains.

When markets turn, however, and asset prices start falling, the mentality quickly turns to fear amid concerns that any further decline will increase losses. Fear then starts to dominate and Selling Pressure can intensify quickly

During the week, there was aggressive rhetoric from US President Trump after reports that North Korea had the ability to miniaturise nuclear warheads to enable them to be carried on long-range missiles.

Trump stated that any attack on the US would be met with fire and fury. In response, North Korea threatened to launch missiles against the Pacific island of Guam.

The market reaction was in line classic patterns seen when global fear increases and risk appetite deteriorate.

There was sharp selling pressure on global equities with an increase in defensive assets demand for the Japanese yen and Swiss franc while gold prices also rose strongly.

US

There was a very strong reading for US job openings in the latest data for June, but there was a slightly weaker than expected reading for producer prices.

The main focus was on the consumer prices data and the headline reading was below consensus forecasts for the fourth successive month. Consumer prices rose 0.1% for July compared with market expectations of a 0.2% gain and the year-on-year increase was held at 1.7%. Underlying prices aso rose 0.1% on the month to give a 1.7% annual gain.

The data triggered fresh doubts surrounding the likelihood of a further increase in Federal Reserve interest rates which put the dollar under fresh selling pressure.  

The US currency lost ground overall with the trade-weighted index only slightly above 2017 lows.

UK

Headline UK industrial production data was stronger than expected with a 0.5% increase for June, although this was distorted by gains in oil and gas output.

Manufacturing data was relatively weak and the latest trade data was also worse than expected. Overall confidence in the UK outlook remained fragile which limited Sterling support.

Bank of England member Saunders, who voted for an immediate increase in interest rates to 0.50% in the last MPC, stated that fears over a very sharp decline in consumer spending had not materialised.

There was a show of unity between Chancellor Hammond and Trade Minister Fox over Brexit, but markets overall struggled to find strong reasons to buy Sterling. GBP/USD fluctuated around 1.3000 while EUR/GBP advanced to fresh 10-month highs near 0.9100.

Euro-zone

There were few Euro-zone developments during the week with the peak holiday season an important factor limiting activity.

The Euro was undermined by profit taking at times, but EUR/USD finished the week above 1.1800.

International

There was further selling pressure on commodity currencies during the week, primarily due to the impact on weaker risk conditions.

The Reserve Bank of New Zealand left interest rates on hold at 1.75% following the latest policy meeting. The central bank again warned over the risks posed by a strong currency and the New Zealand dollar weakened after the statement.

The Australian and Canadian dollars declined for the week as a whole, but closed above their weakest levels.

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