Stocks take $1T hit
The escalating tension between US and North Korea has wiped $1 trillion off global stocks this week, as investors again took cover in the yen, the Swiss franc, gold and government bonds.
london — The damage inflicted on world stocks this week by the escalating war of words over North Korea topped $1 trillion on Friday, as investors again took cover in the yen, the Swiss franc, gold and government bonds.
With the tense mood pushing European shares down for a third day and Wall Street set to fall again, global stocks were on course for their worst week since Donald Trump won November’s US presidential election.
Now installed in the White House, Trump issued a new warning to Pyongyang on Friday, tweeting: “Military solutions are now fully in place, locked and loaded, should North Korea act unwisely.”
North Korea had responded to Trump’s previous promise to unleash “fire and fury”, with a threat to land a missile near the US Pacific territory of Guam.
Japanese markets were closed for a holiday but the yen powered on, hitting an eight-week high of 108.91 yen to the dollar, adding to its biggest weekly gain since May.
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.
The Swiss franc, the other traditional safety-play among currencies, has benefited too. Two weeks ago it saw its biggest weakly fall against the euro since the start of 2015. This week has seen its biggest rise since June 2016.
And in bond markets, 10-year US Treasuries and Germany’s ultra-safe government bonds, known as Bunds, were trading at their highest prices since June.
“We do just not know what happens next with the North Korea situation,” said BNY Mellon FX strategist Neil Mellor.
“For quite some time the market hasn’t really reacted to things on the Korean Peninsula because we know from the past it is largely North Korean sabre-rattling, and it may yet be. But with the rhetoric having gone to a different level, the market just can’t afford to take that risk.”
Many world stock markets have hit record or multi-year highs in recent weeks, leaving them vulnerable to a sell-off, and the tensions over North Korea have proved the
We do just not know what happens next with the North Korea situation Neil Mellor, Forex strategist at BNY Mellon
trigger. The CBOE Volatility Index, the most widely followed barometer of expected near-term US stock market volatility, hit its highest mark since November 8, when Trump was elected president.
The Chinese volatility gauge jumped by the most since January 2016, to its highest level in more than seven months. The eurozone’s version is at its highest since April, when France’s election was rattling the region.
Overnight, MSCI’s broadest index of Asia-Pacific shares outside Japan had skidded 1.55 per cent, its biggest one-day loss since midDecember, to leave it down 2.5 per cent for the week.
South Korea’s Kospi fell 1.8 per cent to an 11-1/2-week low, but its losses for the week are a relatively modest 3.2 per cent. “Pretty remarkable, perhaps even extraordinary, considering,” said Tim Ash, strategist at fund manager BlueBay.
The Korean won also continued to skid, down 0.45 per cent to 1,147.2, falling below its 200-day moving average for the first time in a month.
Australian shares were down 1.3 per cent, set for a weekly loss of 0.6 per cent and Chinese and Hong Kong bluechips lost 1.6 per cent and 1.9 per cent respectively. —