As North Korean tensions simmer, here's how stocks reacted to past crises

By Saqib Iqbal Ahmed
By Saqib Iqbal Ahmed
Author

13 August, 2017

Nervous investors drove shares lower earlier in the week, after President Trump declared Tuesday that the US would react with "fire and fury" to further nuclear provocations from North Korea. The Japanese markets were closed for a holiday.

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 materialise. "Tensions over North Korea lend support to safe-haven assets, particularly gold". The euro fetched $1.1744 compared with $1.1752 late Wednesday in NY. ANZ fell 1.9%, Commonwealth shed 0.7% and Westpac declined 1.3% after RBA Governor Philip Lowe said the central bank is prepared to be patient on rates for quite some time.

But U.S. stocks regained some lost ground, despite Trump's comments Friday that U.S. weapons are "locked and loaded", ready to respond if North Korea acts "unwisely". A gauge of volatility on the S&P 500, the VIX hit its highest reading for over a month. The euro zone's version is the highest since April, when France's election was rattling the region.

Benchmark 10-year notes last rose 5/32 in price to yield 2.2255 percent, from 2.242 percent late on Wednesday.

"What has changed this time is that the scary threats and war of words between the USA and North Korea have intensified to the point that markets can't ignore it", said Shane Oliver, head of investment strategy at AMP Capital in Sydney.

Developments regarding the situation with North Korea may remain in focus next week, although traders are also likely to keep an eye on reports on retail sales, housing starts, and industrial production.

The ten-year yield added to the 4.2 basis point loss posted on Wednesday, falling to its lowest closing level in well over a month.

"Pretty remarkable, perhaps even extraordinary, considering", said Tim Ash, strategist at fund manager BlueBay.

The bombing of Pearl Harbor, for instance, resulted in a 3.8 percent drop in the S&P 500 on December 7, 1941.

Computer hardware stocks rebounded following recent weakness, with the NYSE Arca Computer Hardware Index climbing by 1.4 percent.

"Obviously we are looking at the increased tensions between the USA and North Korea", said Brad Bechtel, managing director FX at Jefferies in NY.

After touching a more than two-month high, spot gold last added 0.1 percent to $1,287.18 an ounce. It soared over 2 percent in the previous two sessions, and is set for a weekly gain of 2.25 percent. Crude futures extended losses on the fear of slowing demand and lingering concern over a global oversupply.

Markets saw a tentative recovery in risk appetite in overnight USA and early Asian trading, but anxiety mounted again as Asian stocks fell back and London, Frankfurt and Paris dropped 0.5-1.2 percent in Europe. The US currency was down 0.3 per cent at 109.94 yen, following a retreat to 109.740, its weakest since June 15.


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