North Korea talk drags global stocks lower; gold, yen rise

Gladys Abbott
August 12, 2017

Gold prices continued to climb on Friday, as geopolitical tensions between the US and North Korea kept safe-haven demand elevated while data showing July inflation undershot expectations, lessened the prospect of a rate hike this year.

"The cooler CPI figures this morning follow similarly lower than expected wholesale price data yesterday and together, have highlighted the extremely benign inflation backdrop that has reduced expectations for Fed lending rate hikes in the months ahead", said Omer Esiner, an analyst at Commonwealth Foreign Exchange.

The Dow and S&P 500 inched higher on the day but they both posted their largest weekly percentage drops since late March.

Traders reacted with dismay to his fresh warning Thursday that his earlier threat to unleash "fire and fury" on the reclusive nuclear-armed state may not have been "tough enough".

The euro, which hit its highest since the start of 2015 on August 2, dipped 0.1 percent to $1.1761 in morning trade in Europe.

A Reuters Datastream index of more than 7,000 stocks across the globe saw its market capitalisation drop from a record high US$61.36 trillion on Monday to US$60.43 trillion at the close on Thursday.

ANALYST TAKE: "We're seeing significant risk aversion in the markets on Wednesday, with the escalation in tensions between the USA and North Korea triggering moves into safe haven assets", said Craig Erlam, senior market analyst at OANDA.

The dollar weakened after news that USA producer prices unexpectedly fell in July, recording their biggest drop in almost a year and pointing to a further moderation in inflation that could delay a Federal Reserve interest rate increase.

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 materialize.

More news: Beijing claims US destroyer violated China's sovereignty & security

Spot gold XAU= added 0.7 percent to $1,286.00 an ounce. Basically if the streak of trading days without a 1%+ up or down day is going to be broken, it's better for it to break with a 1%+ down day than a 1%+ up day.

"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.

The S&P 500 has hadn't a single day move of more than 0.5 percent since mid-July and has fallen more than 1 percent only twice this year.

CURRENCIES: The dollar slipped to 109.98 yen from 110.06 late Wednesday in Asia.

The dollar was further weighed Friday by the soft USA inflation data.

U.S. Treasury long-dated yields dropped to six-week lows, pressured by U.S.

The Korean story has seen the yen gain around 1.5 percent this week, its biggest rise since mid-May.

U.S. crude rose 0.41 per cent to US$48.79 per barrel and Brent was last at US$52.01, up 0.21 per cent.

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