Stocks react as China seizes an underwater US drone in international waters in the South China Sea

Last Friday got lively as China seized unmanned US vessel sending oil higher, bonds yields and the Dollar lower and rattling equities.
Reuters reported in late morning that a Chinese Navy warship seized an underwater drone deployed by an American oceanographic vessel in international waters in the South China Sea, triggering a formal diplomatic protest from the United States and a demand for its return, as a US defense official told the newswire.
The one-year yield jumped 50 basis points, while the five-year rose by 27 basis points. Meanwhile, the 10-year sovereign yield rushed 25 basis points last week (the most since December 2014) spinning from the fallout of hawkish Federal Reserve comments, Yuan depreciation pressures and waning liquidity. Gold Futures spiked as well, as investors sought safety assets. Crude jumped by more than 1%, briefly attaining $52 a barrel in New York, as a rise in maritime tensions could crimp deliveries.
Financial firms decreased for the first time since Donald Trump’s presidential victory, ending a five-week advance in which the group propelled benchmark indexes to records. The Dow Jones industrial average ended down 0.04% to 19,843.41 on Friday, while the S&P 500 lost 0.18% to 2,258.07.
According to Bloomberg, there’s been some discontent between China and the US ever since President-elect Trump was elected. Tensions have escalated in recent weeks after he broke a decades-old policy of not formally recognizing Taiwan’s government and suggested the long-standing OneChina policy can be used a bargaining chip in trade talks. Trump has also previously threatened to declare China a currency manipulator and force changes in US – Chinese trade policy, which he says has led to the theft of American jobs.
The diplomatic incident appears to have been resolved for now after the two countries said on Saturday that China will return the drone.
Koichi Yoshikawa, Executive Director of Financial Markets at Standard Chartered Bank- Tokyo gave more of his opinion saying he thinks markets trend will continue: “Share prices will edge higher and so will bond yields. The dollar will remain strong. One key question is whether the Dow Jones will hit the 20,000 mark”.
In other news, Euro traded at $1.0459, Brent LCOc1 Futures rose 0.7% to $55.57 a barrel, while US West Texas Intermediate crude CLc1 added 0.8% to $52.29 per barrel.markets

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