Stocks, dollar retreat from 3-week high after US-North Korea summit
LONDON (Reuters) – World stocks slipped on Tuesday and the dollar retreated from a three-week high after a US-North Korea summit aimed at the denuclearization of the Korean peninsula.
US President Donald Trump and North Korean leader Kim Jong Un pledged to work toward complete denuclearization of the peninsula, while Washington committed to providing security guarantees for its old enemy.
The MSCI All-Country World index, which tracks shares in 47 countries, fell nearly 0.1% on the day. The dollar slipped into negative territory in European morning trade after earlier reaching a three-week high. It was last flat on the day.
Investors had mixed reactions to the summit, which ended with the signing of a joint statement that gave few details on how the goals set by both sides would be achieved.
“Any de-escalation is good, because in the background you always have worries about these situations,” said Old Mutual Global Investors European fund manager Ian Ormiston, adding that trade conversations over the weekend at the G7 summit were more concerning.
Others, such as Sue Trinh, head of Asia FX strategy for RBC Capital Markets, said there was “nothing particularly game-changing” about the summit and both sides stood far apart on what denuclearization means.
“To the US, it means North Korea must deliver complete, verifiable and irreversible denuclearization. To Kim, it means North Korea suspends nuclear and missile tests in exchange for major economic concessions and the US stepping back as torchbearer for the Asian region.”
In Asian equity markets, trading was volatile, with Japan’s Nikkei paring early gains to close 0.3% higher after earlier rising as much as 0.9%.
MSCI’s broadest index of Asia-Pacific shares outside Japan vacillated between positive and negative, and was last up 0.15%. South Korean shares were weaker while Chinese shares were buoyant after starting in the red. The blue-chip CSI 300 index jumped about 1.3%.
Europe had a muted open, with the pan-European STOXX 600 index last up less than 0.1%. Futures indicated a lower open on Wall Street.
FOCUS SHIFTS TO CENTRAL BANKS
Investor focus was shifting to the two major central-bank meetings later this week. The US Federal Reserve meets on Wednesday, where it is widely expected to raise interest rates for the second time this year.
Futures contracts indicate a 96% probability the fed funds rate will be raised a quarter of a percentage point on Wednesday, according to CME Group.
Investors are focused on how the US central bank characterizes its monetary policy, as borrowing costs return to normal amid an economic expansion. The Fed may signal whether it feels the era of loose money is, in effect, over.
US inflation data due later in the day will also add to speculation over the path for US interest rates later this year. Markets now are pricing in slightly more than one chance in five that rates will be raised for a fourth time this year.
On Thursday, the European Central Bank meets, and some expect the bank to provide guidance for an ending of its bond-buying program at the end of this year.
The spread between Italian and German 10-year borrowing costs narrowed as the US-North Korea summit drew to a close, adding a relief rally on reassuring comments from Italy’s new economy minister.
In currencies, the dollar was 0.1% lower against a basket of its peers. It jumped to a threeweek top against the yen of 110.49 and was last at 110.25.
The British pound was up 0.1% as a crucial parliamentary debate began on amendments to Britain’s European Union withdrawal bill. The euro was flat. In commodities, US crude was down 0.3% to $65.94 per barrel. Brent crude fell half a percent to $76.07.
Spot gold slipped 0.2% to $1,297.64 an ounce.