How port­fo­lios could be af­fected by the u.s.-North Korea rhetoric

North Bay Nugget - - BUSINESS - GE­OFF ZO­CHODNE gzo­chodne@post­media.com

The alarm­ing back-and-forth be­tween the White house and North Korea cast a shadow over the mar­kets Wed­nes­day, af­ter u.s. Pres­i­dent don­ald Trump warned the east asian cap­i­tal Py­ongyang of “fire and fury like the world has never seen.”

here’s how the sit­u­a­tion could be af­fect­ing port­fo­lios to­day:

Asian stocks

Ja­panese and south Korean com­pa­nies saw stocks sway as their neigh­bour traded threats with Trump.

The KOSPI In­dex — a mea­sure of the south Korean stock mar­ket — was down 1.1 per cent as of Wed­nes­day morn­ing.

sam­sung elec­tron­ics Co. Ltd. shares shed 3.02 per cent of their value, Korea elec­tric Power Corp. fell 0.9 per cent and Lg elec­tron­ics Inc. was down 0.28 per cent. Not all Korean stocks took a hit, how­ever, with hyundai Mo­tor Co. up 1.39 per cent.

In Ja­pan, the Nikkei 225 was down 1.29 per cent. Mit­subishi Corp. stock fell 0.41 per cent, and Toy­ota Mo­tor Corp. slid 1.58 per cent.

But the fluc­tu­a­tions spread be­yond asia, ac­cord­ing to Cris­tian Mag­gio, head of emerg­ing mar­kets strat­egy at Td se­cu­ri­ties in Lon­don. Mag­gio wrote in a re­search note on Wed­nes­day that “asia’s risk-off ses­sion ex­tended to europe on the heels of soft fac­tors and the bel­liger­ent rhetoric by u.s. Pres­i­dent Trump chal­leng­ing North Korea.”

“stocks are in deep red both in asia and europe, with Nikkei and swiss/French bourses the re­spec­tive re­gional un­der­per­form­ers (ap­prox. 1.3-1.4 per cent neg­a­tive),” he added.

The loonie

The Cana­dian dol­lar con­tin­ued to lose ground against u.s. green­back on Wed­nes­day morn­ing, as in­vestors sought to shel­ter their money in tra­di­tion­ally se­cure places — such as the amer­i­can cur­rency.

derek holt, vice-pres­i­dent and head of Cap­i­tal Mar­kets eco­nom­ics at sco­tia­bank, wrote in a re­port that Trump’s com­ments had “over­shad­owed” other de­vel­op­ments. Mean­while, holt noted that “safe havens like the swiss franc, Ja­panese yen and usd are ap­pre­ci­at­ing ver­sus the euro, Cad, a$, peso and oth­ers.”

since the Cana­dian dol­lar cracked 80 cents u.s. late in July, it has been on a slow de­cline. The loonie lost an­other 0.33 per cent in value as of 11:02 a.m. on Wed­nes­day, fall­ing to $0.787 us, ac­cord­ing to Bloomberg.

Mark McCormick, North amer­i­can head of FX strat­egy for Td se­cu­ri­ties, wrote in a note that the geopo­lit­i­cal drama was “boost­ing de­mand” for those safer land­ing spots.

More­over, McCormick added “tech­ni­cal mo­men­tum is turn­ing against Cad, in­creas­ing our con­fi­dence that we will soon see a break of 1.27; Cad data sur­prises are los­ing mo­men­tum and po­si­tion­ing in Cad looks stretched.”

Sovereign debt

In times of cri­sis, in­vestors of­ten flock to the se­cu­rity of sovereign debt, and that means ottawa’s lat­est two-year gov­ern­ment of Canada bond auc­tion, sched­uled for Wed­nes­day, is par­tic­u­larly well-timed.

“how very for­tu­itous to hold an auc­tion on the back of Trump’s ‘fire and fury’ re­marks that have raised global de­mand for sovereign debt and which should ben­e­fit de­mand into the auc­tion,” wrote holt.

But holt also sug­gested the mar­kets might be used to the blus­ter of the cur­rent ad­min­is­tra­tions in Wash­ing­ton and Py­ongyang.

“Put sim­ply, mar­kets have strong cause to dis­count com­ments from both Trump and (North Korean leader) Kim (Jong-un) in a per­verse cred­i­bil­ity con­test with­out los­ing all faith in Congress,” he wrote.

holt said that sovereign debt mar­kets “are ral­ly­ing on geopo­lit­i­cal risks,” with u.s. Trea­sury yields down from Tues­day.

how­ever, Cana­dian gov­ern­ment debt was “un­der­per­form­ing the rally in Trea­suries es­pe­cially at the fron­tend.”

AleX bran­don/the as­so­ci­ated Press files

U.S. Pres­i­dent Don­ald Trump tweeted July 29 about his dis­ap­point­ments, par­tic­u­larly with China and its lack of ac­tion on the mat­ter of North Korea. Trump tweeted that past Amer­i­can lead­ers have al­lowed China to make hun­dreds of bil­lions a year in trade but that “they do NOTH­ING for us with North Korea, just talk.”

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