FTSE closes out week in downbeat fashion

The FTSE will close out the week on a negative note, with fears of a US conflict with North Korea sending investors fleeing to havens.

• Late FTSE rebound comes too little too late
• China sets out its position on Korea
• Weak US CPI reading instigates dollar slide

The FTSE looks set to close out the week in suitably downbeat fashion today, with an afternoon rebound coming too little, too late. This has been a week of two halves, with complaints over a lack of volatility giving way to complaints over unpredictable volatility. The volatility was caused by the ratcheting up of tensions between the US and North Korea, with US President Donald Trump and the North Korean regime both threatening military action. Today we have seen China step into the fray, promising to stay neutral if North Korea attacks first but to intervene if the US or South Korea attacks first. This essentially gives North Korea free reign to further develop their nuclear programme.
 The problem is that time is not on the side of the US, with every passing year heightening the military challenge that would be faced in the event of any conflict.

The July CPI figures from the US were somewhat underwhelming, with both headline and core inflation readings coming in at 1.7%. Prices seem to have been flat-lining or even declining recently, taking the pressure off central banks. The sharp devaluation of the dollar index seen in the wake of this afternoon’s US CPI reading highlights just how unsure markets are about a potential fourth quarter rate hike. There is significant conjecture over whether the next rate rise will come in 2017 or 2018.