Global Stocks Selloff Stops at Wall Street; Gold, Yen Tick Up

Xavier Trudeau
Août 13, 2017

On Friday, an MSCI index of stocks across the globe posted its largest weekly drop since the week before Trump won the USA presidential election in November.

U.S. stocks on Friday ended with their worst weekly loss since March after Trump ratcheted up his fiery rhetoric, saying in a tweet: "Military solutions are now fully in place, locked and loaded" against North Korea.

Both the Swiss franc and the yen have climbed against the dollar this week, after U.S. President Donald Trump warned North Korea that it would face "fire and fury" if it threatened the United States.

The yen has also registered its biggest weekly gain since May against the dollar amid speculation that investors of Japan, as the biggest creditor nation, would repatriate their funds should a war break out.

The Swiss franc, the other traditional safety-play among currencies, has benefited too. This week has seen its biggest rise since June 2016.

In bond markets, the yield in U.S. Treasuries fell, also pressured by the lowered expectations for a Fed move. "What we're seeing today is political tensions over North Korea and the United States. making people nervous", said Robert Pavlik, chief market strategist at Boston Private Wealth in NY.

"For quite some time the market hasn't really reacted to things on the Korean Peninsula because we know from the past it is largely North Korean sabre-rattling, and it may yet be".

Many world stock markets have hit record or multiyear highs in recent weeks, leaving them vulnerable to a sell-off, and the tensions over North Korea proved to be the trigger. This led to gold hitting a fresh nine-week high of $1,288.84 an ounce and pushed the dollar/yen pair down through the 109 level.

The pan-European FTSEurofirst 300 index lost 1.01 per cent and MSCI's gauge of stocks across the globe shed 0.26 per cent for a weekly loss of 1.6 per cent, the largest since the week to November 4.

"Of course, it's all come at a time when share markets are due for a correction, so North Korea has provided a ideal trigger". The kiwi was 0.79 percent lower against the greenback after New Zealand's central bank said it was slightly more uncomfortable with the high level of the local dollar than it had been in May. "Pretty remarkable, perhaps even extraordinary, considering", said Tim Ash, strategist at fund manager BlueBay.

Australian shares were down 1.3 percent, set for a weekly loss of 0.6 percent and Chinese and Hong Kong bluechips lost 1.6 percent and 1.9 percent respectively.

So far it's just been a war of words between the US and North Korea so the rally has just been a normal reaction to the possibility of a geopolitical event.

"This situation is beginning to develop into this generation's Cuban Missile crisis moment", ING's chief Asia economist Robert Carnell wrote in a note.

After touching a more than two-month high at $1,291.86, spot gold last added 0.2 percent to $1,288.81 an ounce. Palladium added 0.4% to $899.80 per ounce and was on track to end the week about 2% higher.

Global benchmark Brent also fell 0.9 percent to $51.44, after Thursday's 1.5 percent drop.

For now, the dollar remained on the back foot, pulling back 0.1 percent to 0.9635 Swiss francs on Friday, after dropping as much as 1.2 percent to a two-week low overnight.

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