Trump’s ‘fire and fury’ warn­ing hits stocks

Kuwait Times - - BUSINESS -

Pres­i­dent Don­ald Trump’s warn­ing North Korea faced “fire and fury” and Py­ongyang’s threat of pos­si­ble re­tal­i­a­tion drove in­vestors out of stocks yes­ter­day and into the yen, Swiss franc, gold and gov­ern­ment debt. US stock in­dex fu­tures fell, with the S&P 500 in­di­cated to open down 0.4 per­cent af­ter share prices fell in Europe and Asia.

The Swiss franc, by con­trast, was on track for its big­gest sin­gle-day rise against the euro in more than 2 1/2 years. “Trump’s com­ments about North Korea have cre­ated ner­vous­ness and the fear is if the Pres­i­dent re­ally means what he said: “fire and fury”,” said Naeem As­lam, chief mar­ket an­a­lyst at Think Mar­kets in Lon­don.

“The typ­i­cal text book trade is that in­vestors rush for safe havens.” Trump’s re­marks on Tues­day that North Korea would face “fire and fury like the world has never seen” pushed Wall Street lower on Tues­day and drove up the VIX “fear gauge” of ex­pected vo­latil­ity on the S&P 500 higher.

The VIX rose fur­ther yes­ter­day, ris­ing as far as 12.11, its high­est in al­most a month.

A spokesman for the Korean Peo­ple’s Army said in a state­ment on Wed­nes­day it was “care­fully ex­am­in­ing” plans for a mis­sile at­tack on the US Pa­cific ter­ri­tory of Guam, which has a large US mil­i­tary base. In Europe, the pan-con­ti­nen­tal STOXX 600 in­dex fell 0.9 per­cent, with falls deep­en­ing af­ter a car rammed a group of sol­diers in Paris, in­jur­ing six, in what of­fi­cials said was a sus­pected ter­ror­ist at­tack. France’s CAC dropped 1.6 per­cent and Ger­many’s DAX fell 1.3 per­cent.

Asia stocks dip

Tokyo’s Nikkei 225 share in­dex closed down 1.3 per­cent at its low­est since June 1 as the strong yen hit ex­porters, while South Korea’s KOSPI in­dex fell 1.1 per­cent to seven-week lows. South Korea’s won cur­rency dropped 0.9 per­cent against the dol­lar to its low­est close since July 13.

MSCI’s main in­dex of Asia-Pa­cific shares, ex­clud­ing Ja­pan, was last down 0.6 per­cent. Chi­nese blue chips closed flat but Hong Kong’s Hang Seng fell 0.4 per­cent. In­stead, in­vestors turned to as­sets that tend to ben­e­fit in times of geopo­lit­i­cal and fi­nan­cial stress. The Ja­panese yen strength­ened by 0.5 per­cent to around 109.70 per dol­lar. Ja­pan is the world’s big­gest cred­i­tor coun­try and there is an as­sump­tion in­vestors there will repa­tri­ate funds in a cri­sis.

The Swiss franc re­versed a two-week los­ing streak and gained 1.1 per­cent to as firm as 0.9611 per dol­lar. The Swiss cur­rency was also on track for its big­gest daily gain against the euro since the Swiss Na­tional Bank re­moved its cap on the cur­rency in Jan­uary 2015. It was last up 1.2 per­cent at 1.1305 per euro. “Height­ened geopo­lit­i­cal risks overnight have seen the mar­kets flip from risk-on to risk-off and we have to wait and see how long this move runs be­fore adding some po­si­tions,” said Vi­raj Pa­tel, an FX strate­gist at ING in Lon­don.

The dol­lar in­dex, which mea­sures the US cur­rency against a bas­ket of ma­jor peers, slipped 0.1 per­cent as US Trea­sury yields fell. The euro dipped 0.1 per­cent to $1.1733 but the sin­gle Euro­pean cur­rency has been slip­ping this week against the dol­lar, hav­ing hit a more than 2 1/2-year high of $1.1892 on Aug. 2.

Yields on core gov­ern­ment debt fell. Ten-year US yields dropped 4.3 ba­sis points to 2.24 per­cent and Ger­man equiv­a­lents fell 3 bps to 0.43 per­cent, a six-week low.

Gold rose 0.6 per­cent to $1,268 an ounce. “The mar­ket hates un­cer­tainty and that’s cer­tainly what we have now,” said Ole Hansen, head of com­mod­ity strat­egy at Saxo Bank. “But look­ing ahead un­less we start to see a con­flict break out or a ma­jor stock mar­ket correction, (gold) is capped at 1,295 (although) the up­side at mo­ment is the fa­vored di­rec­tion.”

Oil prices rose be­fore a re­port ex­pected to show US crude stocks fell for a sixth week. Bent crude, the global bench­mark, rose 19 cents to $52.33 a bar­rel.

Highly-rated gov­ern­ment bond yields fell yes­ter­day as ten­sions be­tween North Korea and the United States firmed in­vestor de­mand for so-called ‘safe haven’ as­sets. The es­ca­la­tion in rhetoric jarred fi­nan­cial mar­kets as in­vestors shel­tered their cash in as­sets that tend to per­form in times of stress. Ger­man and US gov­ern­ment bonds, along­side gold and the Ja­panese and Swiss cur­ren­cies, were the main ben­e­fi­cia­ries.

Yields on lower-rated euro zone bonds in Por­tu­gal , Spain and Italy were flat to slightly higher on the day. An­a­lysts said de­mand should re­main firm for a sale of 4 bil­lion eu­ros of five-year Ger­man bonds at auc­tion. “Bunds ap­pear stuck in their tight ranges be­low 0.5 per­cent for now and should be sup­ported by geopol­i­tics this morn­ing,” Com­merzbank said in a note.

There was lit­tle mar­ket re­ac­tion to in­fla­tion data from China, the world’s sec­ond largest econ­omy, which showed prices hold­ing steady in July in a pos­i­tive sign for in­dus­trial out­put and prof­its for the third quar­ter.—Reuters

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