Stocks plunge amid growing North Korean-US tensions, gold continues rise

Paterniano Del Favero
Agosto 11, 2017

The indicated USA market moves reflect a selloff across global stock markets Friday.

On Tuesday, President Donald Trump warned North Korea of "fire and fury" in response to recent threats from Pyongyang, which said it was examining plans for attacking Guam, a US territory in the Pacific with a military base. But U.S. Secretary of State Rex Tillerson said he did not believe there was an imminent threat. The TSX was trading nearly 50 points lower at 10:12 AM ET amid broad-based weakness.

The Japanese Yen saw broad gains in the wake of the rhetoric bandied about by the leaders of the USA and North Korea. Both precious metals are popular risk-off trades, with investors turning to them in times of uncertainty.

Switzerland's currency the franc also has a strong reputation for safety in times of turmoil. The DJIA was poised for a fall of 1.1%, making for its worst week since a 1.5% drop in the one ended March 24.

Bond prices rose. The yield on the 10-year Treasury note slipped to 2.25 percent from 2.26 percent late Tuesday.

"The story today is North Korea and there was nothing in the earnings that was bullish enough to pull people away from focusing on North Korea", said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana. "But with the rhetoric having gone to a different level, the market just can't afford to take that risk".

On Thursday, New York Fed President William Dudley said he expects sluggish USA inflation to rise over the next several months while the hot labor market gets even hotter. The index closed at 16.04 overnight, the highest level since November 8, when Trump was elected president. The euro zone's version is at its highest since April, when France's election was rattling the region.

The VIX, also known as Wall Street's "fear gauge", jumped 44 percent, to 16.04, its highest level this year.

'Stock markets in Europe are still under pressure because of the heightened tensions surrounding North Korea, ' said David Madden, market analyst at CMC Markets UK.

"Of course it's all come at a time when share markets are due for a correction so North Korea has provided a ideal trigger". "Pretty remarkable, perhaps even extraordinary, considering", said Tim Ash, strategist at fund manager BlueBay. The Dow slid 33.08 points, or 0.2 percent, to 22,085.34. The Nasdaq composite lost 0.2 per cent, to 6,370.46.

President Donald Trump promised "fire and fury and frankly power, the likes of which this world has never seen before" on Tuesday evening in response to recent threats from North Korea and its leader Kim Jong Un.

"This situation is beginning to develop into this generation's Cuban Missile crisis moment, with recent leaked intelligence reports alleging that North Korea now has miniaturised its nuclear warheads, which extends the range of its missiles, and potentially brings United States targets into reach", ING's chief Asia economist Robert Carnell said in a research note on Friday.

Damage for the week: The days of verbal sparring between Washington and Pyongyang looks set to bruise weekly performances for the major USA indexes. It hit a 15-month low of 92.548 on August 2.

In commodities, US crude fell 0.67 percent to $49.23 per barrel and Brent was last at $52.58, down 0.23 percent on the day. Netflix fell 3.2 per cent.

Also adding support to gold was disappointing U.S. economic data which reduced the chances of a U.S. Federal Reserve interest rate hike later this year.

Markets had earlier stabilised as USA secretary of state Rex Tillerson tried to ease the tensions, saying he did not believe there is "any imminent threat" to Guam and that diplomacy would prevail.

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