Markets slide, dollar slumps as North Korea fears spike

Paterniano Del Favero
Agosto 13, 2017

U.S. President Donald Trump issued a new threat to North Korea, saying American weapons were "locked and loaded" as Pyongyang accused him of driving the Korean Peninsula to the brink of nuclear war.

The hope that the Fed will have to slow its rate-hike path appeared to stop, at least for now, the near $1-trillion loss in world stocks valuations this week triggered by the war of words between Pyongyang and Washington.

The yen on Friday added to a strong weekly rally against the dollar of close to 1.5 per cent, hitting its highest versus the greenback in nearly four months, at 108.73 yen.

Dollar/yen was last trading at 109.2, gold was at $1,285.75 an ounce, dollar/franc was at 0.9625.

Gold got an extra boost after data showed U.S. consumer prices rose less than expected in July, pointing to benign inflation that could make the Federal Reserve cautious about raising interest rates again this year.

Overnight, MSCI's broadest index of Asia-Pacific shares outside Japan had skidded 1.55 percent, its biggest one-day loss since mid-December, to leave it down 2.5 percent for the week.

Australian shares were down 1.3 percent, set for a weekly loss of 0.6 percent and Chinese and Hong Kong bluechips lost 1.6 percent and 1.9 percent respectively.

The Swiss franc and Japanese yen are often sought out in times of geopolitical tension or global financial stress, partly because both countries have big current account surpluses. "Pretty remarkable, perhaps even extraordinary, considering", said Tim Ash, strategist at fund manager BlueBay.

The Labor Department said on Friday the Consumer Price Index (CPI) edged up 0.1% last month after being unchanged in June.

In bond markets, the yield in U.S. Treasuries fell, also pressured by the lowered expectations for a Fed move.

Away from the geopolitical drama, USA inflation data is due at 1330 GMT.

Against the pound, the euro managed to gain margially, rising 0.06% to 0.9047.

"There are four more (inflation) prints between now and the December FOMC meeting and we expect the Fed to remain data-dependent, if a touch more cautious", said TD Securities in a research note.

US producer prices unexpectedly recorded their biggest drop in almost a year, and the number of Americans filing for unemployment benefits unexpectedly rose last week. The 30-year bond was last up 4/32 in price to yield 2.7871 per cent, from 2.794 per cent late on Thursday. It was on course for a weekly rise of about 5%, the biggest such gain since July 2016.

Spot gold prices were little changed at $1,286.05 an ounce, after touching a two-month high earlier.

"What has changed this time is that the scary threats and war of words between the USA and North Korea have intensified to the point that markets can't ignore it", said Shane Oliver, head of investment strategy at AMP Capital in Sydney.

Crude oil prices tumbled on the back of the selloff on Wall Street and lingering concerns over global oversupply. Palladium added 0.4% to $899.80 per ounce and was on track to end the week about 2% higher.

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