LONDON
President Donald Trump’s warning North Korea faced “fire and fury” and Pyongyang’s threat of possible retaliation drove investors out of stocks on Wednesday and into the yen, Swiss franc, gold and government debt.
US stock index futures fell, with the S&P 500 indicated to open down 0.4 per cent after share prices fell in Europe and Asia.
The Swiss franc, by contrast, was on track for its biggest single-day rise against the euro in more than two and a half years.
“Trump’s comments about North Korea have created nervousness and the fear is if the President really means what he said: “fire and fury”,” said Naeem Aslam, chief market analyst at Think Markets in London. “The typical text book trade is that investors rush for safe havens.”
Trump’s remarks on Tuesday that North Korea would face “fire and fury like the world has never seen” pushed Wall Street lower on Tuesday and drove up the VIX “fear gauge” of expected volatility on the S&P 500 higher.
The VIX rose further on Wednesday, rising as far as 12.11, its highest in almost a month.
A spokesman for the Korean People’s Army said in a statement on Wednesday it was “carefully examining” plans for a missile attack on the US Pacific territory of Guam, which has a large US military base.
In Europe, the pan-continental STOXX 600 index fell 0.9 per cent, with falls deepening after a car rammed a group of soldiers in Paris, injuring six, in what officials said was a suspected terrorist attack. France’s CAC dropped 1.6 per cent and Germany’s DAX fell 1.3 per cent.
Tokyo’s Nikkei 225 share index closed down 1.3 per cent at its lowest since June 1 as the strong yen hit exporters, while South Korea’s KOSPI index fell 1.1 per cent to seven-week lows.
South Korea’s won currency dropped 0.9 per cent against the dollar to its lowest close since July 13.
MSCI’s main index of Asia-Pacific shares, excluding Japan, was last down 0.6 per cent. Chinese blue chips closed flat but Hong Kong’s Hang Seng fell 0.4 per cent.
Instead, investors turned to assets that tend to benefit in times of geopolitical and financial stress.
The Japanese yen strengthened by 0.5 per cent to around 109.70 per dollar. Japan is the world’s biggest creditor country and there is an assumption investors there will repatriate funds in a crisis.
The Swiss franc reversed a two-week losing streak and gained 1.1 per cent to as firm as 0.9611 per dollar. The Swiss currency was also on track for its biggest daily gain against the euro since the Swiss National Bank removed its cap on the currency in January 2015. It was last up 1.2 per cent at 1.1305 per euro.
“Heightened geopolitical risks overnight have seen the markets flip from risk-on to risk-off and we have to wait and see how long this move runs before adding some positions,” said Viraj Patel, an FX strategist at ING in London.
The dollar index, which measures the US currency against a basket of major peers, slipped 0.1 per cent as US Treasury yields fell.
The euro dipped 0.1 per cent to $1.1733 but the single European currency has been slipping this week against the dollar, having hit a more than 2 1/2-year high of $1.1892 on Aug. 2.
Yields on core government debt fell. Ten-year US yields dropped 4.3 basis points to 2.24 per cent and German equivalents fell 3 bps to 0.43 per cent, a six-week low.
Gold rose 0.6 per cent to $1,268 an ounce.
“The market hates uncertainty and that’s certainly what we have now,” said Ole Hansen, head of commodity strategy at Saxo Bank.
“But looking ahead unless we start to see a conflict break out or a major stock market correction, (gold) is capped at 1,295 (although) the upside at moment is the favoured direction.” Oil prices rose before a report expected to show US crude stocks fell for a sixth week. Bent crude, the global benchmark, rose 19 cents to $52.33 a barrel.
