MARKETS KEEP COOL DESPITE N. KOREA MISSILE LAUNCH.
North America indexes remain relatively flat
If investors were looking for an excuse to dump their equities, the sharp escalation of tensions in the Korean peninsula doesn’t appear to have convinced them to do so — at least not yet.
A risk-off tone dominated global markets on Tuesday, after North Korea fired a missile over Japan for the first time since 2009, but stocks showed signs of resilience despite U. S. President Donald Trump’s warning that “all options are on the table.”
Gold rallied to the highest level this year, as the precious metal climbed to US$ 1,326 per ounce — its highest level since Novem- ber, 2016, while 10- year U. S. Treasury yields hit a fresh 2017 low of 2.10 per cent, the VIX spiked roughly 15 per cent to above 13, and the Japanese yen and Swiss franc rallied against the U. S. dollar.
But while equities across the globe fell after Kim Jong Un’s regime fired a missile over Japan and into the Pacific Ocean, U. S. markets in particular seem to be brushing of the increased threat of military action.
The S& P 500 was only slightly l ower, the MSCI World Index climbed a few points, and Japan’s Nikkei 225 was off just 0.45 per cent.
North American stock market indexes in fact finished the day on a positive note.
The Toronto Stock Exchange’s S&P/TSX composite index advanced 30.67 points to 15,082.70. In New York, the Dow Jones industrial average gained 56.97 points to 21,865.37, the Nasdaq composite index rose 18.87 points to 6,301.89, and the S&P 500 index edged up 2.06 points to 2,446.30.
“All things considered, the market reaction to this latest development has been impressive for its muted tone,” said Sue Trinh, head of Asia FX strategy at RBC Capital Markets.
“It is a sad indictment that markets have become increasingly desensitized to otherwise disturbing events, but you can’t really blame them; the ‘ buy- the- dip’ investment strategy has paid off and will carry on doing so — until it doesn’t,” she added.
It was just three weeks ago on Aug. 8 that Trump warned that North Korea would be “met with fire and fury like the world has never seen” after reports indicated the U. S. territory Guam might be the target of a ballistic strike.
Those comments helped the Dow Jones industrial average break its multi- session streak of record highs. While the index has trended lower since, the Dow is off less than two per cent from its all-time high.
“The reason this particular missile launch is seen as pivotal is that North Korea has up until now employed ballistic settings designed to avoid a Japan flyover,” said Jimmy Jean, senior economist at Desjardins Group.
While Trump’s response garnered much of the attention, China’s response will be critical, as the country is North Korea’s economic and diplomatic lifeline.
Japanese Prime Minister Shinzo Abe called for an emergency meeting of the UN Security Council, after Tokyo stated the time for dialogue with North Korea has passed.
One potential gamechanger would be if China is forced to put an embargo on its crude oil sales to North Korea.
“Brinkmanship holds that much more risk given huge technological advances, but until there is a collective will to bring North Korea to heel, regional stability and global economic integration remains compromised,” Trinh said.