TSX falls as North Korea tensions spur flight to safety

Ivan Schwartz
August 13, 2017

U.S. President Donald Trump issued a new verbal warning to Pyongyang on Thursday, saying that his previous promise to unleash "fire and fury" may not have been strong enough after North Korea responded with a threat to land a missile near the U.S. Pacific territory of Guam.

Baker Avenue's Lip said the USA market was higher due to "bargain hunters", but "there's more room for the market to come down. Comments that can lead us to a war".

The broad-based S&P 500 was hit even harder, dropping 1.5 percent to close at 2,438.22, while the tech-rich Nasdaq Composite Index lost 2.2 percent 6,216.87.

Computer hardware stocks rebounded following recent weakness, with the NYSE Arca Computer Hardware Index climbing by 1.4 percent. But for the week the S&P 500 lost 1.3 percent, its worst weekly showing since March.

"With European, U.S. and Asian markets all suffering heavily in anticipation of a potential conflict in Asia, it is worthwhile noting that we have heard similar posturing between Trump and Kim Jong Un before", said Mahony.

Many markets have recently climbed to record or multiyear highs, leaving them vulnerable to a sell-off.

"It's just a classic risk-off day", said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in NY.

Although Japan could be in the front line of any clash with North Korea, the yen is benefitting because Japan is the world's biggest creditor nation and Japanese investors tend to repatriate funds in times of stress, attracting other flows.

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European stocks have fallen for a third day on Friday and look headed for their worst week since early November a year ago, as US President Donald Trump's rhetoric on North Korea over the past few days made investors risk averse. "But looking ahead, unless we start to see a conflict breakout or a major stock market correction, (gold) is capped at $1,295, (although) the upside at the moment is the favoured direction".

"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.

Energy stocks retreated 0.5 percent, despite higher oil prices.

Valeant's stock, which rallied a day before following quarterly results, sank 9.6 percent to C$17.85 after it said its subsidiaries in Australia were the subject of a tax audit.

Weaker U.S. Treasury yields also helped the yen, boosting its appeal relative to the greenback. Core prices had been expected to rise by 0.2%. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, dipped by 2.3 basis points to 2.189 percent.

German bond yields fell, gold and the Japanese yen surged and the leveraged bets on higher yielding currencies such as the Australian dollar took a beating. US gold futures gained 0.26 percent to $1,293.50 an ounce. Brent crude was up 30 cents at $53.00 a barrel.

Gold prices, which hit a two-month low on Thursday, were steady at $1,286.31 an ounce, after surging over 2 percent in the past two sessions.

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