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Safe-Haven Assets Rise after Trump Cancels Summit with North Korea

By:
James Hyerczyk
Published: May 24, 2018, 14:50 UTC

The reaction was normal and straight out of a Risk Management 101 class. It’s only a cancellation of a meeting so I don’t expect to see any major changes in trend at this time.

Trump

After several weeks of relative calm in the markets due to the easing of tensions over geopolitical events, volatility appears to be coming back with a vengeance fueled by a couple of flip-flops by the White House over the summit with North Korea and U.S. – China trade relations.

Shortly after the U.S. stock market opening, President Trump announced he had canceled his historic summit in Singapore with North Korean leader Kim Jong Un scheduled for next month.

The formal encounter, which would have marked the first face-to-face meeting between a sitting U.S. president and a North Korean leader, was scheduled for June 12.

Trump wrote in a letter to Kim, which was released Thursday morning, “Sadly, based on the tremendous anger and open hostility displayed in your most recent statement, I feel it is inappropriate, at this time, to have this long-planned meeting.”

“You talk about your nuclear capabilities, but ours are so massive and powerful that I pray to God they will never have to be used,” Trump wrote.

We can’t say that the cancellation of the meeting came as a complete surprise as tensions have been simmering for a little more than a week after North Korea canceled a key meeting with South Korea. The rogue nation abruptly cancelled talks with its neighbor and American ally out of anger over joint military tests with the U.S. in the Korean peninsula. At the same time, Trump took the high road by repeating the significance of the meeting and sounding optimistic about a possible favorable outcome.

However, a tweet earlier in the week by Trump started to lay the framework for a U.S. withdrawal from the meeting. On Tuesday, Trump told reporters there was a “substantial” chance that the meeting might not take place at the planned time and location.

The relationship took a bad turn early Thursday when a top North Korean official, Choe Son Hui, reverted to name calling in response to Vice-President Mike Pence’s remarks likening Pyongyang with Libya.

Pence said North Korea could end up like Libya if it doesn’t make a nuclear deal with Washington. Choe countered Pence’s verbal attack with one of his own saying, “As a person involved in U.S. affairs, I cannot suppress my surprise at such ignorant and stupid remarks gushing from the mouth of the U.S. vice president.

Market Response

The announcement of the cancellation of the summit means that investors have to take some protection in the markets due to renewed uncertainty. The first reaction was to sell stocks. Investors pared positions and used the proceeds to buy “insurance” in the U.S. Treasurys, gold and the Japanese – so-called safe-haven assets.

The reaction was normal and straight out of a Risk Management 101 class. It’s only a cancellation of a meeting so I don’t expect to see any major changes in trend at this time. Traders are likely to absorb the threat of heightened volatility over the near-term with no serious damage to the stock market anticipated. All we expect to see at this time is an asset allocation adjustment which is essentially a shuffling of money between low risk and high risk investments.

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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