Markets Slide, Dollar Slumps as North Korea Fears Spike
Equity screens were a sea of red in Asia Friday and the dollar slumped against the yen as investors fled to safe haven assets after US President Donald Trump doubled down on his North Korea rhetoric.
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".
Asian stocks sank in the wake of the worldwide downturn triggered by the remarks, after Wall Street indices suffered their biggest losses in nearly three months.
The dollar was testing the 109 yen barrier in morning forex trade, while gold, another classic safe haven asset, was trading at around $1,285 per ounce, up more than two percent this week.
With Japanese markets closed for a public holiday, Hong Kong led the downward charge, with Sydney, Shanghai and Seoul all deep in negative territory.
"The latest threats over North Korea have finally escalated to the point where the market has been obliged to react," said Ric Spooner, an analyst at CMC Markets in Sydney.
"This has injected the first note of volatility into US stock markets for some time."
Analysts warned the softening dollar could test June's low of 108.82 yen and even the 2017 trough of 108.13 yen.
- 'Trump talk trashes markets' - The greenback also came under pressure after New York Federal Reserve President William Dudley cautioned it would "take some time" for US inflation to reach the bank’s two percent target, the latest warning price pressures remain muted.
US producer prices Thursday disappointed, as traders await consumer price inflation later Friday.
"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.
However, market watchers said equity markets remained focused on the deepening geopolitical crisis, as angry threats from Washington and Pyongyang stoke fears of a catastrophic miscalculation with global consequences.
"Most certainly the market was hoping for some upbeat assessment from Fed Bill Dudley, but it's silly to put the blame game on him when in reality the market attention was focused elsewhere," said Oanda's Stephen Innes.
"Not to mince views here, it was Trump talk that trashed the equity markets, nothing more nothing less."
In commodities trading, crude was pushed lower by an OPEC report showing production by cartel members increased slightly in July, including by Saudi Arabia which had championed efforts to extend an output freeze.
Comments from Russian state energy giant Gazprom about reopening a closed field once the deal to curb supply expires also depressed sentiment.
"On many occasions, we’ve also heard from the Russians, and from Russian oil producers, that once the deal is complete and free production reigns again that Russia will prime the pump," said Greg McKenna, an analyst at AxiTrader.
-- Bloomberg News contributed to this report --
- Key figures around 0230 GMT -Tokyo - Nikkei 225: Closed for holiday
Hong Kong - Hang Seng: DOWN 1.4 percent at 27,055.42
Shanghai - Composite: DOWN 1.0 percent at 3,236.96
Euro/dollar: DOWN at $1.1764 from $1.1777
Pound/dollar: DOWN at $1.2976 from $1.2979
Dollar/yen: DOWN at 109.05 yen from 109.21
Oil - West Texas Intermediate: DOWN 12 cents at $48.47 per barrel
Oil - Brent North Sea: DOWN 16 cents at $51.74
New York - Dow: DOWN 0.9 percent at 21,844.01 (close)
London - FTSE 100: DOWN 1.4 percent at 7,389.94 points (close)