Investors Cautious Over Geopolitics

Financial markets displayed muted trading volumes on April 10 with a majority of investors desisting from making bigger bets. This is due to the choppy geopolitical tensions in the Korean peninsula and the Middle East. For the west, the week has a holiday.

Safe havens

European stocks remained unchanged. Shares of BHP Billiton, the mining major, went up by about five percent post Elliot Management, the activist hedge fund, pressured the company to go for a spin-off in its American business. The greater geopolitical risks pushed investors to safer assets like government debt.

The dollar went north towards the currency's three week highs. It drew support from the hike expectations in US rates. A number of global stocks, which has already reached the point where they can be regarded as expensive, remained aground in neutral. The US earnings season are due during the second week of March.

The euro went lower. The borrowing expenses incurred by France hit their peak level over the Germans as investors worried about the increasing popularity of Jean Luc Melenchon, a far left candidate in the polls prior to the presidential votes to be held in April. Melenchon is expected to squarely fight Marine Le Pen, the far-right leader in the crucial May round. All these makes the markets unpredictable.

Lukewarm all around

President Donald J. Trump's top aides spoke in different voices when asked the direction of US foreign policy with regard to Syria. This question was pertinent as US military bombed a Syrian air force base. While Rex Tillerson, Secretary of State, said the  strikes serve as a warning to a number of other nations, specifically North Korea. Gao Qi of Scotiabank, said that conflict risks gone went up. He said that this fact will support the dollar against a number of Asian currencies. It also helped that the US central bank has kept a hawkish stand on the issue.

Trading in global stocks are lukewarm over March and April as investors have regarded valuations over long term averages post 10 percent increase since the lows of  November 2016. Trading is 16 times of the forward earnings at MSCI AC World index, as compared to about 14 times over 15 year average.

According to Christian Lenk of DZ Bank, the market has concentrated too much on extreme possibilities. He said that the coming elections will invariably result in some tensed nerves. He opined that the final round of the French elections will be held between Le Pen and Macron.

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