Ashes To Ashes: Surveying The Fallout 24 Hours Later

Ok, so “what hath Trump and Kim wrought?”

Let’s start with the markets closest to the rogue regime with the nukes.

It was the worst day since May for Japanese shares:

And vol. on the Nikkei spiked the most since 2015:

The won fell sharply, dropping to a 4-week low:

The Kospi fell more than 1%, extending a 2-day decline, and as you can see, you could make an argument that the near-term top may be in:

And don’t forget, this comes after massive inflows into South Korean shares:

Investors in the U.S. did some dip buying and the damage was contained on Wall Street:

And why not, right? After all, everything is so “cheap”:

The VIX has remained elevated following Trump’s Tuesday afternoon ad hoc nuclear threat:

All the drama is of course weighing on yields and the dollar. The greenback tried to rally but couldn’t hold on:

Treasuries gave up some of their rally (i.e. yields rose) after a poor 10-year auction, but generally speaking, you can tell the geopolitical/policy turmoil is taking a toll:

Gold is holding near its highest levels since early June on safe haven flows:

Equities were lower across the board in Europe, with French shares leading the way down:

Emerging market stocks were lower by 1%:

High yield credit fell for the third straight day:

But you should probably buy some more junk bonds and throw some EM corporate debt exposure in there too, because as you can see, there quite literally isn’t any risk according to markets:

Oil struggled to find direction after conflicting signals from the EIA report which showed crude stockpiles drawing for a 6th week, but also showed a disconcerting gasoline build.

“The decline in crude inventories was constructive, [but] the market’s a little bit disappointed that we saw a gasoline build [because] in normal course, we’d still be getting declines because you’re in the middle of summer driving season,” Brian Kessens, a managing director and portfolio manager at Tortoise Capital Advisors, said earlier on Wednesday.

Notably, the yuan is now trading like a safe haven as traders seem convinced that tight capital controls and PBoC determination will be enough to trump (pun kinda, sorta intended) the possibility that China is about to have a failed state on its border:

“Part of the move was attributed to the technical break at 6.7. It’s a relatively-high yielding currency yet it’s behaving like a haven asset, regardless of the geopolitical risk on its border,” Bloomberg’s Ye Xie wrote this afternoon, adding that “it seems investors are confident that Beijing will keep the yuan stable in the case of escalating tension in the region, which won’t be an outlandish idea.”

As you ponder all of this, don’t forget to buy the nuclear war dip…