- Stocks Fall, Havens Gain as Korea Tensions FlareStocks Fall, Havens Gain as Korea Tensions Flare
Stocks fell and gold and the yen climbed as geopolitical tensions flared up again, with U.S. president Donald Trump weighing new economic sanctions that could target China after a nuclear test Sunday by North Korea.
The Stoxx Europe 600 Index declined, with banks and technology companies bearing the brunt as all industry sectors moved into the red after a report that Pyongyang is preparing to launch an intercontinental ballistic missile heightened investors’ unease. The MSCI Asia Pacific Index was on track for the biggest drop since Trump’s vow to return nuclear threats with “fire and fury” in early August. S&P index futures also fell, while most European government bonds advanced and the yen and Swiss franc led currency gains. Industrial metals including copper and nickel extended a rally.
The White House warned any nation doing business with Kim Jong Un’s regime would be met with economic sanctions and trade embargoes, and his defense chief said the U.S. has “many military options.” North Korea said Sunday it successfully tested a hydrogen bomb with “unprecedentedly big power.” The test, the first since Trump took office, is a new hurdle for markets that have proven resilient to recent bouts of tension on the Korean peninsula.
“Expect some short-term risk-aversion trades,” Citigroup Inc. economists led by Johanna Chua wrote in a client note. “But such market moves tend to be short-lived, as typically tensions defuse quickly. So unless the global response to this test raises the probability of a military strike or North Korean regime collapse (both unlikely), this time may play out similarly.”
Some investors are choosing to hold more cash in the face of increasing geopolitical instability. Nader Naeimi, who heads a dynamic investment fund at AMP Capital in Sydney and helps manage about $110 billion, has about 30 percent of his holdings in cash, while Chicago-based Ariel Investments is holding more cash versus its target in the event a pullback creates buying opportunities.
“While today’s fall in risk assets might not be deep, the process is one of an incremental rise in market volatility,” Naeimi said. This “will culminate in a deeper-than-expected correction,” he said.
- The Stoxx Europe 600 Index sank 0.6 percent as of 9:40 a.m. in London.
- The U.K.’s FTSE 100 Index dipped 0.3 percent.
- Germany’s DAX Index fell 0.5 percent.
- The MSCI All-Country World Index sank 0.2 percent, the largest dip in more than two weeks.
- Futures on the S&P 500 Index declined 0.4 percent.
- The Bloomberg Dollar Spot Index dipped 0.2 percent.
- The euro gained 0.5 percent to $1.1915.
- The British pound was little changed at $1.2943.
- The Japanese yen jumped 0.7 percent to 109.45 per dollar, the largest climb in more than three weeks.
- The Swiss franc increased 0.8 percent to $0.9574.
- Germany’s 10-year yield declined two basis points to 0.36 percent.
- Britain’s 10-year yield dipped one basis point to 1.04 percent.
- Gold gained 1 percent to $1,338.16 an ounce, the strongest in a year.
- West Texas Intermediate crude decreased 0.1 percent to $47.22 a barrel.
- Copper advanced 0.8 percent to $3.14 a pound, the highest in about three years.
- Nickel advanced 1 percent to $12,155 per metric ton, the highest in more than two years.
- Japan’s Topix index ended 1 percent lower, while South Korea’s Kospi index lost 1.2 percent and the S&P/ASX 200 Index in Sydney declined 0.4 percent.
- The Hang Seng Index in Hong Kong fell 1 percent.
- Indexes rose in China. The Philippines’ main gauge jumped 1 percent.
- The MSCI Asia Pacific Index fell 0.6 percent, poised for its worst decline since Aug. 11.