Asia learns to adapt to Korean tensions; Fed views awaited

SYDNEY: Asian share markets inched back into the black yesterday as investors wagered the latest flare-up of tensions on the Korean peninsula would fade away like so many others.

MSCI’s broadest index of AsiaPacific shares outside Japan regained 0.3 per cent, half the losses suffered Tuesday when North Korea fired a missile into Japanese waters.

“North Korea’s success in ICBM test can have some pressure since it means improvements in missile technology, but the test alone will only have limited impact like any other missiles launched before,” said Kim Doo-un, a foreign exchange analyst at Hana Financial Investment.

South Korea’s main index rebounded by 0.36 per cent and Japan’s Nikkei ended up 0.25 per cent.

E-Mini futures for the S& P 500 were barely changed, while yields on 10-year US Treasury notes dipped 2 basis points to 2.33 per cent.

In Europe, Eurostoxx futures fell 0.3 per cent, with the DAX off 0.2 per cent and the FTSE 0.1 per cent.

A holiday in the United States and a dearth of major data kept activity muted, though minutes of the Federal Reserve’s last meeting due later in the day could provide some impetus.

Among the few releases in Asia was the Caixin/ Markit services purchasing managers’ index ( PMI) for China which dropped to 51.6 in June, from 52.8 in May.

North Korea said it had conducted a test of a newly developed intercontinental ballistic missile that can carry a large and heavy nuclear warhead.

South Korean and US troops fired missiles into the waters off South Korea to show their deep strike precision capability.

US Secretary of State Rex Tillerson called for global action against Pyongyang’s nuclear threat, though it was not entirely clear what new steps could be taken.

All the sabre rattling gave the safe-haven yen an early lift, but the dollar soon steadied at 113.20 yen.

Gold was a slim 0.1 per cent firmer at US$ 1,226.10 an ounce.

Moves were minor with the euro steady at US$ 1.1356 and the dollar index down a fraction at 96.182.

Investors awaited minutes of the Fed’s June meeting to gauge how committed it was to hiking rates gain this year and any detail on plans to wind back its massive balance sheet.

“In the May minutes, ‘a couple’ of participants worried that tight labour-market conditions could pose an inflationary risk, while ‘several others’ saw a downside risk for inflation,” said Kevin Harris, a director at Roubini Global Economics.

“We will look for any shift between those two concerns.” Markets imply around a 60 per cent chance of another rate rise in December and a much shallower path of future increases than most Fed members.

Indeed, while some other central banks had recently sounded more hawkish, signs were any unwinding of stimulus globally would not be a synchronized affair. — Reuters