Forget the war of words taking placing over North Korea, eyes are turning to the crisis unfolding in Venezuela. That includes the eyes of President Trump who it seems wouldn’t rule out military intervention. This comes despite the US skipping the recent Lima meeting between 12 countries from the American continents, which gave the market the impression the US would take a back seat when it came to sorting out this crisis.
 
Venezuela is a country rich in oil which exports mainly to the US. Any disruption to that supply will prompt the price of oil to rally globally and affect the share price of energy companies.
 
Trump is also paying close attention to China, announcing his first major trade action against the country. It will begin with an investigation into intellectual property rules that Beijing uses to force foreign investors to turn over valuable technologies.
 
Expect less tweets from the US president towards North Korea going forward and the market focusing on other issues.
 
Headline inflation in the US ticked up in June. That said, it is still significantly less than its peak of 2.7% in February.
 
While falling inflation has clearly provided a boost to bonds this year, it has also been a boon for the S&P 500. Lower inflation has eased concerns about the effects of tighter monetary policy on equities and contributed to a more competitive dollar.
 
The risk for inflation remains on the upside in the US. With a tight employment market, a weak US Dollar and risk to the price of Oil on the upside, the most likely outcome is that the US will raise rates quicker than the market expects.
 
We expect President Trump will continue to post Tweets aimed at keeping the US Dollar lower.
 
Of course, today’s video wouldn’t be complete without a summary of North Korea. The market appears completely unphased by the situation with the S&P500 down only 1.4% last week, Europe down 2.7% and the ASX200 was almost flat at down half a percent last week.
 
Since World War II there have been several other instances when the US has been on the brink of a war that did not break out. Similarly, these situations had little lasting effect on the markets either.
 
We are working on the assumption that there won’t be a war between the US and North Korea and don’t think people need to panic. It will be interesting to see if North Korea becomes disappointed with a lack of Trump attention if he turns his focus to the challenges in South America and China.