World stock markets started correction - 11.8.2017

Investors expect the publication of the US consumer price index

The daily drop of S&P 500 by 1.5% on Thursday turned out to be the 3-month high

On Thursday, the US stocks fell. The daily drop of S&P 500 by 1.5% turned out to be the 3-month high. The main reason for this was the on-going escalation of tensions between the US and North Korea, called "war of words" by market participants. In their opinion, there is still a rather high risk that the parties will move from words to action beginning military operations. An additional negative for the market was the publication of weak quarterly reports of the retail networks Macy's and Kohl's. Their stocks fell by 10% and 6%, respectively. Yesterday's US economic data were negative for the stock market. Weekly unemployment rose exceeding forecasts. The July producer price index fell in comparison with June for the first time in a year. This can cause a reduction in the profits of the US companies. Today, futures for the US stock indices are in the red. Accordingly, S&P 500 may well show the highest weekly level since November 8, 2016, when presidential elections were held in the US. The US dollar index is traded in a narrow range this week and almost does not react to the political negativity. On Thursday, the New York Fed president Robert Dudley spoke and expressed the opinion that the Fed should once again raise the rate in 2017 and begin to reduce the volume of bonds on its balance sheet, estimated at $4.5 trillion. His words supported the dollar. Recall that the Fed has twice raised the rate this year. Today at 14-30 CET the July inflation data, which may greatly affect the market dynamics will be released in the US. The preliminary forecast is, in our opinion, neutral. It is expected that the inflation will continue at the June levels. Accordingly, a noticeable price movement may begin if real data differ from investors' expectations. The inflation rate is taken into account by the Fed when making a decision on rate changes.

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The British FTSE 100 demonstrated the highest daily decline in 4 months

Today European stock indices are falling for the 5th consecutive day

Today European stock indices have fallen for the 5th consecutive day. Yesterday they strongly slumped. The British FTSE 100 demonstrated the highest daily decline for 4 months on the background of closing records for dividends and a number of companies. An additional negative for the European stock market was the weak quarterly reports of Adecco, Lanxess and OMV companies. Yesterday and today there were no significant economic data in the Eurozone. The euro is traded in the narrow range against the US dollar. The British pound fell to the 3-week low, while the Swiss franc continues to strengthen. Investment bank Morgan Stanley has published a review predicting that the pound will drop to $1.25 in Q1, 2018.

The US dollar fell to the 8-month low against the Japanese yen

Today the Japanese stock index Nikkei was not traded due to the national holiday - Mountain Day. The Hong Kong index Hang Seng fell today at 1.9%. During the week, it demonstrated the biggest drop of 2.5% since the beginning of 2017. The main reason is the political risks of the war between the United States and North Korea. The US dollar fell to the 8-month low against the Japanese yen, which investors see as a safety asset.

Brent prices decreased and updated the weekly low

On Friday Brent prices fell by 1% and updated the weekly low. On Thursday, it exceeded the level of $53 per barrel and reached the 2.5-month high. The International Energy Agency said that in July OPEC’s agreement on production limitation was fulfilled by only 75%. This is the lowest level since it entered into force in January 2017. The main violators of the agreement were Algeria, Iraq and the UAE. In addition, the countries that do not participate in the production limitation agreement- Nigeria and Libya, have significantly increased oil production.