Korean tensions keep yen near eight-week highs

Ivan Schwartz
August 12, 2017

The price of gold rose on Thursday for the third straight day, reaching a two - month high as another exchange of threats by the United States and North Korea prompted investors to buy bullion as a safe - haven asset.

The Dow Jones Industrial Average .DJI fell 204.69 points, or 0.93 percent, to close at 21,844.01, the S&P 500 .SPX lost 35.81 points, or 1.45 percent, to 2,438.21 and the Nasdaq Composite .IXIC dropped 135.46 points, or 2.13 percent, to 6,216.87. Nine of the index's 10 main groups ended lower.

South Korea's KOSPI fell 1.7 per cent on Friday to its lowest since May 24, but its losses for the week were a relatively modest 3.2 per cent.

"Pretty remarkable, perhaps even extraordinary, considering", said Tim Ash, strategist at fund manager BlueBay.

"When you have a market like we have had this year, and it has been amazingly calm, and you introduce a major source of uncertainty, there is bound to be some reaction", said Brad McMillan, chief investment officer for Commonwealth Financial.

"There is a low probability that we will have a war with North Korea", he said, and a larger pullback in stocks is "a buyable drop".

Later on Friday, investors will look to U.S. July consumer price data for hints on the Fed's policy outlook and near-term moves in the dollar.

He said the crisis provided a "perfect trigger" for a correction at a time when many markets - including the FTSE 100 - were at or around record highs, leaving them vulnerable to a sell-off if investors think it is time to take profits.

Japanese markets were closed for a holiday but the yen powered on, hitting an eight-week high of 108.91 yen to the dollar, adding to its biggest weekly gain since May.

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Computer hardware stocks rebounded following recent weakness, with the NYSE Arca Computer Hardware Index climbing by 1.4 percent. About 7.5 billion shares changed hands on United States exchanges, well above the 6.25 billion average for the last 20 days.

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Overall, gold continued to edge higher to the $1,280 per ounce area in European trading.

"If the data continues to come in on the softer side, the market might start to price the Fed staying on hold this year", said Sireen Harajli, FX strategist at Mizuho in NY.

Materials, a sector that includes gold producers and other resource-based companies, was the lone gainer among the index's 10 main sectors, rising 0.7 percent.

U.S. Treasury long-dated yields dropped to six-week lows, pressured by U.S.

The dollar was further weighed down on Friday by the soft U.S. inflation data.

"More likely than anything else, the price action was a function of an overextended USA equity market that has been in need for a healthy correction off record highs", LMAX Exchange analysts said in a morning note.

The 30-year bond last /32 in price to yield 2.7933 percent, from 2.794 percent late on Thursday.

Ongoing global glut concerns lingered in oil markets despite a bigger-than-expected draw in USA crude inventories, leaving prices volatile.

USA crude fell 0.41 percent to $48.39 per barrel and Brent was last at $51.68, down 0.42 percent on the day.

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