Equities fall on rising tension between US & North Korea

No one wants this – at least we hope no one wants this. Leo_Traveling  Shutterstock

No one wants this – at least we hope no one wants this. Leo_Traveling Shutterstock

The hope that the Fed will have to slow its rate-hike path appeared to stop, at least for now, the near $1-trillion loss in world stocks valuations this week triggered by the war of words between Pyongyang and Washington.

Federal-funds futures, used by investors to place bets on the Fed's rate-policy outlook, on Friday showed a roughly 36% chance of a rate increase by the end of the year, down from 47% Thursday and 54% a month ago, according to CME Group data.

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

President Donald Trump said Friday that the USA military was "locked and loaded", while Pyongyang accused him of driving the Korean peninsula to the brink of nuclear war.

Trump said on Thursday that his first threat to unleash "fire and fury" may not have been tough enough.

Baker Avenue's Lip said the US market was higher due to "bargain hunters", but "there's more room for the market to come down".

The suspected range of North Korea's missiles based on their ICBM tests. Chris Jones  IFLScience
The suspected range of North Korea's missiles based on their ICBM tests. Chris Jones IFLScience

Shane Oliver, head of investment strategy at AMP Capital in Sydney, said: "What has changed this time is that the scary threats and war of words between the United States and North Korea have intensified to the point that markets can't ignore it".

At the close trading in NY, the Dow Jones Industrial Average was down 204.69 points, or 0.9%, to 21,844.01, its biggest one-day fall since May 17. Regions Financial shed 23 cents, or 1.6 percent, to $14.07.

Emerging market stocks lost 1.27 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.47 per cent lower.

U.S. stocks have risen week after week this year - with the S&P up more than 9 percent - in extremely low volatility, as strong corporate earnings and an improving global economy offset disappointment that U.S. President Donald Trump's promises to lower corporate taxes and implement a massive infrastructure spending have so far failed to see the light of day.

More than 430 stocks from all US exchanges hit their lowest levels in 52 weeks or more on Thursday, the most for any session since mid-November right after Trump was elected.

Developments regarding the situation with North Korea may remain in focus next week, although traders are also likely to keep an eye on reports on retail sales, housing starts, and industrial production.

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The yen on Friday added to a strong weekly rally against the dollar of close to 1.5 percent, hitting its highest versus the greenback in nearly four months, at 108.73 yen.

Oanda analyst Craig Erlam said: "Risk aversion is once again the name of the game.as geopolitical tensions mount and investors head for cover in the traditional safe havens".

The Korean won also continued to fall, down 0.45 percent to 1,147.2.

USA government bonds strengthened Friday as soft inflation data led investors to further scale back expectations for interest-rate increases from the Federal Reserve.

"If the data continues to come in on the softer side, the market might start to price the Fed staying on hold this year", said Sireen Harajli, FX strategist at Mizuho in NY.

The Russell 2000 index of smaller-company stocks picked up 1.69 points, or 0.1 percent, to 1,374.23.

US, France pledged to work to denuclearize North Korea
"Trump reiterated to President Macron the United States' commitment to stop the North Korean nuclear menace". Security Council to impose new sanctions on North Korea, including the banning of exports.

Sterling was last trading at US$1.3007, up 0.25 per cent on the day.

In bond markets, the yield in U.S. Treasuries fell, also pressured by the lowered expectations for a Fed move.

"Today's inflation data put the Fed on pause and really diminishes the fact that there's still some noise going around with the North Korea-U.S. situation", said Phil Blancato, CEO of Ladenburg Thalmann Asset Management.

The Dow slid as declines in Apple and Goldman Sachs, down 2.3% and 1.7% respectively, outweighed gains in McDonald's and Coca-Cola, up 1.4% and 0.5% respectively.

Ongoing global glut concerns lingered in oil markets despite a bigger-than-expected draw in USA crude inventories.

OIL: Benchmark U.S. crude rose 23 cents to settle at $48.82 a barrel on the on the New York Mercantile Exchange.

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