Geopolitics Weighs on Riskier Assets as the U.S. and Pyongyang Step up Rhetoric

European stock markets are trading under pressure as warring words between North Korea and the U.S. take a toll. Pyongyang threatened a missile strike on the U.S. Pacific territory of Guam after Trump made his “fire and fury” threat. The Euro Stoxx 50 is down 1.5% presently, while the DAX is down 1.2%. The S&P 500 futures are lower, pointing to sizeable opening loss on Wall Street.

WTI oil is up 0.6% at $49.45 after recovering from a two-session low at $48.92. Yesterday’s peak is at $49.77. The rise follows the weekly API report showing a 7.8-million-barrel draw in U.S. crude inventories, which was more than expected as analyst had forecast a 2.3 million barrel draw. Directional follow-through has been somewhat curtailed as investors monitor the geopolitical flare-up.

Chinese Inflation Slowed in July

China’s CPI slowed to a 1.4% year over year growth rate in July from 1.5% in June, undershooting expectations. The annual growth rate had been on the rise through May and June at +1.5% since bottoming out at 0.8% year over year in February of this year. That matched the 0.8% low seen in January of 2015 that was the slowest growth rate since the 0.6% pace in November of 2009. Meanwhile, PPI grew at a 5.5% year over year pace in July, matching the growth rate in June as firm commodity prices relative to last year remain supportive. PPI growth accelerated to a 7.8% year over year clip in February after seeing annual declines from March 2012 to August 2016.

Italian June industrial production beat expectations in rising 1.1% month over month, better than forecast for a modest 0.2% month over month gain. This followed a 0.7% month over month gain in May. Production rose 5.3% year-on-year comparison. Today’s data is the latest in a series, including retail sales and labor market reports, to have both beat expectations and increase optimism that the economy is on a recovery roll, which in turn is dovetailing with the broader theme in the Eurozone.

The Bank of France forecasts French Q3 GDP at 0.5% quarter over quarter, which would mark an unchanged growth pace from Q2. The central bank’s July manufacturing business climate survey, of which its GDP forecasts are a part of, produced a headline reading of 105 after 103 in June, portending a rise in industrial, services and construction sectors in August. Its service sector business climate headline ticked lower, to 99 after 100 in June, and the construction climate reading dipped to 102 from June’s six-year peak at 103. Overall, the sentiment readings are consistent with France achieving the 1.6% growth in 2017 being forecast by INSEE.