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Cancellation of Summit Rattles Stock Investors, Boosts Demand for Safe-Haven Treasurys

By:
James Hyerczyk
Published: May 25, 2018, 04:29 UTC

Nervous investors drove the Dow down 280-points shortly after the cash market opening. The S&P 500 Index was also pressured by a decline in energy stocks in reaction to a sell-off in crude oil prices.

U.S. Government Bonds

U.S. Treasury markets rose, driving yields lower, on Thursday after President Donald Trump announced that he cancelled the highly anticipated summit with North Korea’s Kim Jong Un.

The yield on the benchmark 10-year Treasury note fell to 2.977 percent, while the yield on the 30-year Treasury bond was lower at 3.128 percent.

Some of the buying was related to the short-covering rally from Wednesday that was fueled by dovishly perceived Fed minutes. The Federal Reserve’s May monetary policy minutes revealed that central bankers would be comfortable allowing inflation to temporarily run above its 2 percent target.

Trump’s surprise announcement rattled stock investors who pared positions on the news, sending investors into safe haven assets like gold, the Japanese Yen and Treasurys.

U.S. Equity Markets

The major U.S. stock indexes closed lower on Thursday in reaction to President Trump’s surprise cancellation of the first face-to-face meeting between a sitting U.S. president and a North Korean leader.

In the cash market, the benchmark S&P 500 Index settled at 2727.76, down 5.53 or -0.20%. The blue chip Dow Jones Industrial Average closed at 24811.76, down 75.05 or -0.30% and the tech-driven NASDAQ Composite finished at 7423.54, down 2.42 or -0.03%.

E-mini Dow Jones Industrial Average
Daily June E-mini Dow Jones Industrial Average

Nervous investors drove the Dow down 280-points shortly after the cash market opening. The S&P 500 Index was also pressured by a decline in energy stocks in reaction to a sell-off in crude oil prices. Trading was actually mixed in the NASDAQ with gains in Netflix and Adobe offsetting a loss in Facebook.

Volume was light, however, as investors prepared for the long U.S. holiday week-end.

Before the opening, the indexes were already under pressure after the Commerce Department said it started an investigation into whether automobile imports “threaten to impair the national security” of the United States.

U.S. Economic News

Weekly Unemployment Claims came in higher than expected at 234K. Traders had forecast 220K. The Home Price Index (HPI) also disappointed with a 0.1% read. Investors were looking for a 0.5% increase. Existing Home Sales also missed the market at 5.46 million units, below the 5.56 million unit estimate.

New York Fed President William Dudley, speaking on reference rate reform at the BoE’s Markets Forum, in London, did not make any comments on Fed monetary policy.

However, Atlanta Fed President Bostic said that the cancellation of the US/North Korea summit (and broader geopolitical uncertainty) is part of the downside risks to the economy. Bostic said that uncertainty has its own contribution, then we have to figure out what the policy ends up being, adding that if it turns out certain ways then business can go forward.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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