Won drops; yen leads gains among G-10 currencies, gold rises
Stocks in Asia declined with U.S. equity-index futures and the South Korean currency tumbled as investors took a risk-off approach after the U.S. and North Korea exchanged threats amid escalating tensions between the two nations. The yen and gold climbed.
Investors took advantage of the latest volley of words to take some profit after global equities climbed to record highs this week. Volatility gauges from the U.S. to Japan rose after President Donald Trump said in response to a Washington Post report on North Korea’s nuclear capabilities that further threats from the country would be met with “fire and fury.” North Korea said it’s examining an operational plan for firing a ballistic missile toward Guam.
“The market is realizing that economies are doing well enough for both the Fed and the ECB to remove stimulus,” Ken Peng, a Hong Kong-based investment strategist at Citi Private Bank, said. “This is going to make a lot of people a bit more nervous about liquidity. In that environment, these geopolitical headlines will have more impact, more punch. The talk is more intense than what it used to be.”
Markets have been lifted from a state of inertia as geopolitical tensions have ramped up following the United Nations’ decision to impose sanctions against North Korea’s rapidly developing nuclear weapons program, leading to the latest war of words between the countries. The Kospi index fell as much as 1 percent. The won declined as much as 0.8 percent, falling to a three-week low, while the cost of insuring five-year South Korean sovereign bonds from nonpayment climbed and the Kospi 200 volatility index jumped 30 percent.
China’s producer price gains held steady in July on surging commodity prices. The numbers came ahead of Friday’s U.S. inflation numbers which may be key to the interest-rate outlook for the world’s biggest economy. Global equities remain within earshot of an all-time high as the majority of corporate earnings continue to exceed expectations.
Among the key events looming this week:
- U.K. factory output for June is due Thursday, with industrial production for Italy on Wednesday and for France on Friday.
- This week’s Federal Reserve speakers aren’t done: keep a keen ear out for comments by New York Fed boss Bill Dudley on Thursday.
- Dutch Prime Minister Mark Rutte resumes talks to form a coalition government on Wednesday.
- Argentina, Mexico, New Zealand, Peru, the Philippines, Serbia and Zambia set monetary policy.
- Singapore markets are closed for a holiday.
Here are the main moves in markets:
- Japan’s Topix index fell 1.3 percent and South Korea’s Kospi index slipped 0.9 percent. Australia’s S&P/ASX 200 Index added 0.5 percent. The Hang Seng Index in Hong Kong lost 0.7 percent and China’s Shanghai Composite Index was down 0.2 percent.
- Futures on the S&P 500 Index slid 0.3 percent as of 2:06 p.m. in Tokyo. The underlying gauge fell 0.2 percent on Tuesday, when the MSCI All-Country World Index also fell 0.2 percent from a record it reached on Monday.
- The VIX rose 10 percent and the Nikkei Stock Average Volatility Index climbed 11 percent.
- The yen rose 0.4 percent to 109.94 per dollar, an eight-week high. The euro was at $1.1739, while the Australian dollar fell 0.5 percent to 78.72 U.S. cents.
- The Bloomberg Dollar Spot Index was little changed.
- South Africa’s rand tumbled 1.1 percent on Tuesday after President Jacob Zuma survived a bid by opposition lawmakers to oust him, crushing the prospect of new leadership reviving the country’s economy.
- The yield on 10-year Treasuries slid one basis point to 2.25 percent.
- 10-year Australian government bond yields was trading at 2.63 percent.
- Gold futures added 0.3 percent to $1,264.73 an ounce, after climbing 0.3 percent on Tuesday.
- West Texas Intermediate crude futures fell 0.3 percent to $49.01 a barrel, extending Tuesday’s losses, amid speculation that stockpiles may rise once the summer period of higher demand ends.