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Geopolitical Tensions on the Radar: Expectations for the Markets

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Geopolitical Tensions on the Radar: Expectations for the Markets PART 1 OF 5

Escalated North Korea Tensions and the Global Financial Markets

Geopolitical tensions back in focus

The last few days have been tense for the markets after the war of words between President Trump and the North Korean regime. On Tuesday, August 8, 2017, Trump warned North Korea that it would be met with “fire and fury” if it threatens the United States. On Wednesday, North Korea responded by saying it would launch an “enveloping strike” in the waters near the US territory of Guam. On Thursday, Trump said his fire and fury statement wasn’t tough enough.

Escalated North Korea Tensions and the Global Financial Markets

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Market reaction to the news

The markets around the globe reacted as geopolitical tensions escalated. Investors who have been riding the optimistic wave since the beginning of this year found a reason to cash in on some gains. Any geopolitical uncertainty is considered negative for the markets, and investors will move from riskier assets to safe havens. All the major indexes turned negative after tensions rose between the United States and North Korea. At the close of business on Thursday, August 10, the S&P 500 (SPY) index fell 1.6%, the Dow (DIA) fell 1.1%, and the tech heavy Nasdaq (QQQ) fell 2.1%. Similar losses were witnessed in Europe (VGK), the emerging markets (EEM), and Asia.

Series overview

In this series, we’ll be taking a look at the impact of these escalated tensions between the United States and North Korea. We’ll look at the impact on volatility (VXX), bonds (BND), and currency (UUP) as well as analyze whether we need to be worried about the current tense geopolitical environment.

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