London Open: Markets are moving to the tune of rising geopolitical tension around the world

Korea Peninsula escalations 

Elevated tensions in the Korean peninsula are catching the markets eye this morning, Reports are suggesting North Korea will cut all communication with the South after anti-North Korean leaflets were sent from the south. With risk sentiment at overly bullish levels, broader markets will remain extremely sensitive to bad news on any front, be it economic or geopolitical. Although, as we’ve seen time and time again in the past, any risk-off due to an escalation in Korean tensions is usually a fader’s paradise as the threatening rhetoric always gets walked back.

The Pound 

The Pound should remain under focus and perhaps downside pressure as the deadline for a mutually-agreed extension to the Brexit transition period that’s due to end on December 31 is July 1. The chance of an extension seems exceptionally low.

Gold 

The rise in geopolitical tensions have helped boost gold’s appeal this morning but the yellow metal remains bid on dip as investors anticipate the U.S. Federal Reserve will maintain its dovish stance at its policy-setting meeting this week.

Oil 

Oil prices rose this morning after reports that armed forces entered state-owned Sharara oilfield and told Corporation employees to stop working. Still, there remains an overhang from devil's advocate view that noncompliance OPEC members will brazenly ignore the new deal.

Oil prices are showings signs of topping out for now after the OPEC+ agreement to extend, by one month, the existing first-stage agreement for output cuts. The positive momentum in oil prices driven by OPEC+ output cuts needs to be followed by an uptick in demand to see prices higher. 

While equity markets are looking ahead to a recovery in corporate profits in 2021, energy markets don’t have the luxury to be as forward-looking. Oil demand remains weak in the US, and big states that drive the US economy need to open with a driving boom. But, ultimately, without the return of travel between the world’s three largest regions – the US, EU and China – demand will be slow to pick up.

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.