Volatility, which may have been largely contained for nearly a month is back on track for adding disruption to the market environment as cancellation of peace talks between North and Sough Korea add to geopolitical tensions. Adding to the negativity are rising US interest rates and heightening tensions over Iran deal.
U.S. Treasuries
The Yields on the benchmark 10-year Treasury have been on the rise recently, hitting the highest level since 2011 while 2-year yield has reached levels not seen since 2008, mainly on the back of robust retail sales and manufacturing data.
The 10-year Treasury note, rose 9 basis points to 3.091 percent Tuesday, above the 3.03 level reached in late April and the highest since 2011. The two-year yield hit a high of 2.589 percent, its highest level since August 11, 2008. The yield on the 30-year Treasury bond was also higher at 3.22 percent, its highest since April 26.
Renewed Sanctions on Iran
Renewal of U.S sanction against Iran that are likely to disrupt oil exports from one of the biggest global exporters of crude might have been behind recent oil price increases. Potential crude oil supply shortages are adding to the risks. However, the uncertainty still remains high as not all nations have previously signed the Iran nuclear deal are supporting the sanctions. Some countries are showing oppositions while rumors also suggest that other oil-exporting giants like Saudi Arabia, Russia, Kuwait and Iraq may easily compensate for potential supply shortages.
South Korean – North Korean Summit
On Tuesday, North Korea discontinued talks with the South and threatened to
Late Tuesday, North Korea abruptly canceled talks with South Korea scheduled for Wednesday and threatened to step away from talks with U.S, stating that joint US-South Korea military exercises “are a provocation and preparation for invasion”.
Summary
Given heightened geopolitical risks, form the events mentioned above, traders should be ready for wild swings on the market. The stock market is expected to be affected mostly as stock price movements are especially vulnerable to geopolitical risks.
Gold and currencies will be under severe pressure as well, with no clear direction taken.