Daily Market Color

Treasurys Rise, Stocks Slide as Geopolitical Tensions Drive Demand for Safe Haven Assets

The escalating geopolitical tensions between the US and North Korea remained the focal point in global financial markets today, increasing demand for safe haven assets.  Yesterday afternoon’s “fire and fury” comment from President Trump was met swiftly by a statement from the North Korean army, announcing their intention to “carefully examine” plans for an attack on the US controlled island of Guam.  Today President Trump resumed his aggressive stance through a series of tweets which touted the United States’ nuclear arsenal as the strongest in the world.  In the midst of the back and forth rhetoric, Secretary of State Rex Tillerson attempted to ease tensions by informing the public that they need not be alarmed as military action was not imminent.  The flight to safety in financial markets somewhat eased throughout the day as major US stock indices finished marginally down for the session while Treasury yields held 1-2 bps lower across the curve, bringing the 10-year note yield to just under 2.25%.  Gold futures recorded their largest daily rise in two months, jumping 1.3% to $1,280/ounce.



US economic data reported today was again on the lighter side and featured Q2 nonfarm productivity and labor cost.  In the April-June period, hourly output per worker increased at a 0.9% annualized pace (+0.8% expected), the fastest pace in a year and a half.  YoY nonfarm productivity increased at a two-year high of +1.2%.  The rise in productivity offset the perceived softness from the unit labor cost data, which was reported as climbing +0.6%, a significant drop-off from Q1’s +5.4% level.  Compared to a year earlier, labor costs fell at a 0.2% pace during the second quarter, indicating little inflation pressure over that span.


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