Trump warning over North Korea hits markets

Ivan Schwartz
Августа 13, 2017

The Japanese yen rises to a two-month high against the USA dollar overnight as safe-haven flows dominate trading.

Pyongyang said it was examining plans for attacking Guam, a US territory in the Pacific with a military base.

On Tuesday, President Donald Trump warned North Korea of "fire and fury" in response to recent threats from Pyongyang, which said it was examining plans for attacking Guam, a USA territory in the Pacific with a military base. Bond and gold prices, traditional havens for nervous investors, were little changed, and the VIX, a measure of how much volatility investors expect in stocks, fell 3.3 percent following a 44.4 percent jump the day before. According to the Associated Press, South Korea's Kospi lost 1.7 percent, while Hong Kong's Hang Seng slid 2 percent.

Major indexes in Europe closed mostly lower.

"Therefore, there is a high probability that the current tension will ease off, and the recent flight into defensive stocks will reverse".

Flight-to-safety moves pushed up the value of classic assets perceived as safe, including the franc, the Japanese yen and gold prices after North Korean leader Kim Jong Un made an explicit threat to strike a USA military base in Guam.

The market slide accelerated slightly in the last half-hour of trading as President Trump denounced North Korea's nuclear program. "Both countries know that there is no turning back once they push the button", Fujii said.

"Tensions will continue to mount and could eventually develop into a "black swan" event that the markets are not prudently considering", Steve Hanke, professor of Applied Economics at the Johns Hopkins University, told the Reuters Global Markets Forum on Wednesday.

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According to analyst Simona Gambarini, the price of gold "tends to rise in anticipation of a conflict but often falls when tensions turn into a full-blown war".

KEEPING SCORE: The Standard & Poor's 500 index fell 7 points, or 0.3 percent, to 2,466 as of 11:20 a.m.

The Japanese yen strengthened by 0.5 percent to around 109.70 per dollar.

The Nasdaq Composite was up 19.35 points, or 0.31 percent, at 6,236.22.

"It's a clear case of "risk-off" sentiment lifting the yen, as investors focus on the latest developments with North Korea", said Kumiko Ishikawa, FX market analyst at Sony Financial Holdings in Tokyo.

Insurers and banks, which invest in higher-yielding products such as foreign bonds, underperformed after U.S. Treasury yields fell on Wednesday, with the yields on the benchmark 10-year note hitting a six-week low.

His order, reported in state media, came hours after U.S. President Donald Trump warned Pyongyang not to "make any more threats" to the U.S., saying it would face a "fire and fury" response "like the world has never seen".

The Japanese yen hit an eight-week high against the United States dollar, while spot gold also reached a two-month high.

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