North Korea standoff wipes $1trn off global stocks

Traders working on the floor of the New York Stock Exchange

Traders reacted with dismay to his fresh warning Thursday that his earlier threat to unleash "fire and fury" on the reclusive nuclear-armed state may not have been "tough enough".

Equity markets had traded with a soft tone in Europe and there was a sharp increase in selling pressure in NY with the S&P 500 index declining by close to 1.0%. "But with the rhetoric having gone to a different level, the market just can't afford to take that risk", said BNY Mellon FX strategist Neil Mellor.

"The cooler CPI figures this morning follow similarly lower than expected wholesale price data yesterday and together, have highlighted the extremely benign inflation backdrop that has reduced expectations for Fed lending rate hikes in the months ahead", said Omer Esiner, an analyst at Commonwealth Foreign Exchange. The Stoxx Europe 600 benchmark was down 1% (http://www.marketwatch.com/story/european-stocks-face-worst-week-in-9-months-on-us-north-korea-tensions-2017-08-11), while Hong Kong's Hang Seng led the Asian losses with a drop of 2%.

The Japanese yen hit an eight-week high against the US dollar, and USA -traded Nikkei stock futures dropped 2 percent to their lowest since mid May.

There were falls of almost 2% on South Korea's Kospi and Hong Kong's Hang Seng, with markets in mainland China and Australia also down - taking their cues from sharp losses on Wall Street earlier.

The tentative gains "suggest that the headline shock value pertaining to the US-North Korea standoff is starting to dissipate, which is to say actual action will now speak much louder than words", said Briefing.com analyst Patrick O'Hare.

The yen tends to benefit during times of geopolitical or financial stress as Japan is the world's biggest creditor nation and there is an assumption that Japanese investors there will repatriate funds should a crisis materialize.


Many world stock markets have hit record or multi-year highs in recent weeks, leaving them vulnerable to a selloff, and the tensions over North Korea have proved to be the trigger.

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.

It was 0.2 percent lower at 1.1310 francs, compared with highs of 1.1537 francs hit a week ago. The dollar was down 1.2 percent at 0.9627 Swiss francs, while an ounce of gold was 1 percent higher at $1,275. "But we're in a low inflationary environment, which can help valuations remain elevated for longer than they would otherwise".

The dollar pulled back against the euro and other currencies after the Consumer Price Index rose a tame 0.1 percent in July.

U.S. Treasury long-dated yields dropped to six-week lows, pressured by U.S. The 30-year bond was last up 4/32 in price to yield 2.7871 per cent, from 2.794 per cent late on Thursday.

USA crude rose 0.41 per cent to US$48.79 per barrel and Brent was last at US$52.01, up 0.21 per cent.

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