Equity Rout Deepens, Bonds Rise on Korea Tension: Markets Wrap

August 11th, 20176:32 am @

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Stocks tumbled in Asia, following a U.S. slump overnight, as investors headed for havens from what hedge-fund manager Ray Dalio termed a game of chicken between U.S. and North Korean leaders.

Asian stocks were poised to end their worst week since March. Equity benchmarks from Hong Kong to Sydney extended losses after the SP 500 Index halted an unprecedented stretch of calm on American equity markets and the CBOE Volatility Index soared 44 percent. South Korea’s stocks and currency dropped and volatility spiked. U.S. President Donald Trump dialed up his warning to North Korea on threats to American allies, lifting gold to a nine-week high and pushing the yen through 109 per dollar, while Treasuries strengthened. Japanese markets are closed for the Mountain Day public holiday.

Escalating tension between the U.S. and North Korea has dominated sentiment in financial markets this week as the spat threatens to boil over into military confrontation. Trump stepped up his campaign of pressure, warning the regime not to follow through with a missile test near Guam and promising massive response to any strike against America or its allies.

Global equities began the week at an all-time high and some notable investment companies have been warning now would be a good time to reduce levels of risk in portfolios. Dalio, who leads the world’s largest hedge fund at Bridgewater Associates, recommends investors consider placing 5 percent to 10 percent of their assets in gold as a hedge against current political and economic risks.

Terminal users can read more in our Markets Live blog.

Here are some important upcoming events:

  • Friday’s CPI data in the U.S. will get close attention following an unexpected drop in wholesale prices in July. New York Fed President William Dudley cautioned that it will “take some time” for inflation to reach the central bank’s 2 percent target, the latest official warning that price pressures remain muted. The producer-price index fell 0.1 percent last month, the first decrease in almost a year.
  • Reserve Bank of Australia governor Philip Lowe gave a testimony before the House of Representatives Economics Committee on Friday and said interest rates are more likely to rise, though not for a while.

Here are the main moves in markets:

Stocks

  • Australia’s SP/ASX 200 Index fell 1.3 percent as of 2:40 p.m. in Sydney. The Hang Seng Index in Hong Kong tumbled 1.9 percent and China’s Shanghai Composite Index was down 1.6 percent.
  • South Korea’s Kospi index lost 1.6 percent and volatility on the Kospi 200 surged as much as 27 percent.
  • Contracts on the SP 500 Index lost less than 0.1 percent and Nasdaq 100 futures declined 0.3 percent. The SP 500 declined 1.5 percent on Thursday for its steepest slide since May 17 and the lowest close since July 11.
  • The VIX rose 44 percent to 16.04, it’s highest closing price of Trump’s presidency.

Currencies

  • The won weakened 0.5 percent against the dollar, set for the worst weekly decline since March.
  • The yen rose 0.2 percent to 108.98, advancing to the strongest in eight weeks.
  • The Bloomberg Dollar Spot Index was little changed after falling 0.1 percent on Thursday.
  • The euro was at $1.1776 after climbing 0.1 percent in the previous session.
  • The Aussie slid 0.4 percent to 78.47 U.S. cents.

Bonds

  • The yield on 10-year Treasuries declined five basis points to 2.20 percent on Thursday, with trading limited until London opens due to the Japan holiday.
  • Australian 10-year government notes saw yields drop eight basis points to 2.58 percent.

Commodities

  • West Texas Intermediate crude declined 0.9 percent to $48.15 a barrel in early Friday trading after falling 2 percent Thursday.
  • Gold traded at $1,285.82 an ounce and is up 2.2 percent this week.

    Article source: https://www.bloomberg.com/news/articles/2017-08-10/equity-rout-deepens-bonds-rise-on-korea-tension-markets-wrap