Markets Rattled by Geopolitics

Daily Analysis - 23/05/2018

Risk aversion returns to markets

geopolitics


Markets have reversed sentiment and have indicated a strong interest for safe haven assets such as the yen and the Swiss Franc. Risk aversion was primarily a result of U.S. President Trump’s negative comments with regards to the U.S. – China trade talks. There was even mention that the Trump meeting with North Korea’s Kim may not work out.

Yen and Swissie boosted by geopolitical concerns


The USDJPY pair tumbled overnight to fall below 110.50 while the yen’s strength pushed the Nikkei lower by more than 1 percent. The Swiss Franc was bid as well, particularly against the euro, due to concerns about the political situation in Italy. EURCHF has been declining sharply and has dipped below 1.17.

 

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Turkish lira at record low


Worries about Turkey’s financial-market stability has hit the lira which sank to a new record low. The currency’s tumble accelerated early on Wednesday, falling around 3 percent against the U.S. dollar. The catalyst for the move was a statement from credit rating agency Fitch with regards to President Recep Tayyip Erdoğan suggesting recently that he vows to take more responsibility for monetary policy if he wins the June 24 snap elections.

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FOMC minutes in focus later


Market focus will be turning to the release of the FOMC minutes due later for any clues on the Fed’s outlook on inflation, which the U.S. central bank looks at closely when making decisions on raising interest rates. CPI data out of the U.K. this morning will be watched. Crude oil inventories from the U.S. will be closely scrutinized as oil has been in focus these days. Following a strong rally yesterday, crude prices fell back below $72 a barrel.

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