North Korea Has Markets Nervous But Not Panicked

Xavier Trudeau
Août 12, 2017

S&P 500 e-mini futures were down 0.2 percent, while the dollar dipped 0.2 percent against its perceived safe-haven Japanese counterpart to 110.12 yen.

The Dow Jones Industrial Average fell 94.55 points, or 0.43 per cent, to 21,954.15, the S&P 500 lost 19.51 points, or 0.79 per cent, to 2,454.51 and the Nasdaq Composite dropped 76.39 points, or 1.2 per cent, to 6,275.94.

In Europe, Britain's FTSE100 was down over one percent, Germany's DAX traded 0.5 percent lower, while the French CAC40 index was 0.62 percent in the red, as of 9:00am GMT.

Trump warned North Korea again on Thursday not to strike Guam or US allies, saying his earlier threat to unleash "fire and fury" on Pyongyang if it launched an attack may not have been tough enough. The reclusive state raised the stakes further with a detailed plan to send a salvo of missiles towards the USA territory of Guam.

Geopolitical concerns often prompt risk aversion and boost demand for the yen for its perceived safe-haven status.

Japan's Topix index had the biggest slide in nearly three months, falling 1.3 per cent on trading volume 22 per cent higher than the 30-day average at the close.

Markets had taken heart earlier in the day after US Secretary of State Rex Tillerson sought to play down the escalating war of words between Washington and Pyongyang.

Japan said on Tuesday it was possible that North Korea had already developed nuclear warheads and warned of an acute threat posed by its weapons programs as Pyongyang's continues missile and nuclear tests in defiance of United Nations sanctions. Nonetheless, most Americans (72 percent) are uneasy about the possibility of conflict with North Korea, according to a CBS News poll, and 61 percent say they are uneasy about the president's approach to the situation. The market hit a two-month high as investors continued to react to an additional exchange of threats by the United States and North Korea. "We have no choice but to acknowledge the risks, and to report that financial markets are reacting to them".

The president didn't show signs of letting up on the tough rhetoric.

Wall Street indices opened modestly higher later on Friday as USA investors looked for an end to the three-day losing streak. Most observers believe the next hike will come in December.

On the currency markets, the pound was up 0.03% against the dollar at $1.2981 but down 0.23% against the euro at 1.0999 euros. A rise in expectations for global inflation has left investors generally short of the two currencies and the turnaround in the franc this week by contrast follows its worst week since the Swiss National Bank removed a ceiling on the currency in January 2015.

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