Investors are dumping risk assets early Tuesday as geopolitical tensions remained the key catalyst shaking the markets. The move by China to send 150,000 troops to North Korea border over fears that Trump may strike Pyongyang and comments from White House Press Secretary Sean Spicer that additional U.S. intervention could be triggered are putting investors on the defensive side.
The U.S. administration suggested earlier that there’s no intention to remove Assad, but if going forward they respond to every barrel bomb attack, this will indicate a full-scale war against the regime. This will of course be considered as crossing the redline with Russia and will be seen asa severe blow to U.S.-Russian relations, which arealready not in their greatest state.
Today, the U.S. Secretary of State Rex Tillerson’s visit to Moscow will provide an early indication on how the situation will evolve. If Putin decidesto withdraw the “Order of Friendship Award” once given to Tillerson, markets could become more jittery.
The U.S. dollar edged down slightly, as U.S. Treasury yields fell for the second day. Fed Chair Janet Yellen didn’t provide any new catalyst to traders about the prospects for a June hike or how the Fed will proceed with shrinking the balance sheet. She expressed her confidence that the economy will continue to grow at a moderate pace and that rates will increase gradually; however, this was nothing new to investors.
The EURUSD is trading within 20 pips range early Tuesday, after rebounding from a one-month low yesterday. There are less than two weeks until the French votefor President kicks off and so far, opinion polls indicate that Marine Le Pen and Emmanuel Macron will come out ahead in the first round. They also show that Le Pen will lose badly in the 7 May runoff election against either Macron or FrancoisFillon. I will continue to price in some risk premium on "what if things went wrong" and Marine Le Pen became President.However, this risk remains below 10% and this is what’s reflected in French government bonds.
Gold and Yen are as usual the primary beneficiaries of the heightened geopolitical tensions. Both are up 0.2% against the dollar today, but I’m more interested in the gold move as it’s making a new attempt to close above the 200-day moving average. This marks the sixth attempt in a month gold has triedto break the long-term moving average, but all were unsuccessful in closing above it. If the precious metal was successful in closing above the 200-day moving average for the day and the week, we are likely to see additional upside momentum.
