As North Korean tensions simmer, here's how stocks reacted to past crises

Gladys Abbott
August 13, 2017

A Chinese state-run newspaper said on Friday that China should make clear that it will stay neutral if North Korea launches an attack that threatens the United States, but that if the USA attacks first and tries to overthrow North Korea's government, China will prevent it doing so.

After North Korea claimed Trump is "driving" the Korean peninsula to the "brink of a nuclear war", the president responded with a tweet suggesting the U.S. is prepared to take military action against the communist nation.

"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". In a note to investors, Paul Christopher, head global market strategist, and Tracie McMillion, head of global asset allocation, suggest, "the threat of a nuclear weapon is certainly more serious than previous threats, but that threat also may increase the probability of a diplomatic solution".

The CBOE Volatility Index, a barometer of expected near-term stock market volatility, closed at its highest since the election.

The dollar fell sharply against the Swiss franc Wednesday, with haven assets including Switzerland's currency bid higher following a verbal clash between North Korea and U.S. President Donald Trump.

South Korea's fell 1.7 percent to its lowest since May 24, but its losses for the week are a relatively modest 3.2 percent.

The dollar index fell 0.3 percent, with the euro up 0.36 percent to $1.1812.

Bond prices came under pressure early in the session and remained stuck in the red throughout the day.

The greenback also came under pressure after New York Federal Reserve President William Dudley cautioned it would "take some time" for USA inflation to reach the bank's two percent target, the latest warning price pressures remain muted.

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Gold prices were up almost 1% (http://www.marketwatch.com/story/gold-gains-about-1-as-us-north-korea-tensions-grow-2017-08-09) to $1,273.30 an ounce. Brent crude, used to price worldwide oils, added 4 cents to $52.74.

The recent resilience of data on the USA economy has not dampened the latest climb, despite depressing prices earlier in the week as reports returned high employment figures ahead of further U.S. inflation information this week.

The Standard & Poor's 500 index fell 7 points, or 0.3 percent, to 2,467. The Nasdaq composite lost 18 points, or 0.3 percent, to 6,352. But for the week the S&P 500 lost 1.3 percent, its worst weekly showing since March.

Australian stock futures dropped 1.2 percent and New Zealand stocks slid 1.1 percent.

European stocks have fallen for a third day on Friday and look headed for their worst week since early November previous year, as US President Donald Trump's rhetoric on North Korea over the past few days made investors risk averse. News Corp tumbled 5.4% and REA Group slumped 6% after disappointing full-year results.

"Both (PPI measures) were well below consensus and give us no hope that consumer price inflation is going to materially beat expectations", said Chris Weston, chief market strategist at IG Markets.

Amid the hot rhetoric, US stocks sold off sharply on Thursday, with the S&P 500 falling more than 1 percent.

A report on consumer price inflation is likely to attract attention on Friday, with consumer prices expected to rise by 0.2 percent in July.

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