Dollar slumps, Tokyo tanks as North Korea tensions spike

The Nikkei slumped to its lowest close for almost three months Wednesday, leading an Asia-wide sell-off sparked by President Donald Trump’s apocalyptic warning over North Korea’s weapons programme.

Escalating tensions around Pyongyang’s nuclear ambitions sent a shiver through markets worldwide and pushed the dollar to below 109.7 yen in afternoon forex trade to an eight-week low against the safe haven currency, piling more pressure on Japanese stocks.

Tokyo’s blue-chip index tumbled 1.3 percent to its lowest close since late May after the Dow’s winning streak of nine straight records ended following Trump’s sharp rhetoric of “fire and fury”, with the main European bourses also opening lower Wednesday.

Hong Kong and Shanghai followed Tokyo into the red, as China factory gate inflation came in slightly below forecast amid warnings from experts of a further slowdown in the world’s second-largest economy.

Stocks ended more than one percent down in Seoul while the won slumped to a three-week low against the dollar as the US president and South Korea’s volatile neighbour dramatically ramped up their war of words.

Tensions spiked yet further when North Korean state media later said Pyongyang was considering strikes near US military installations in Guam.

But analysts said equities had also fallen as investors took profits.

“North Korea is being used as a reason to sell Japanese stocks, just as it was used yesterday in the US,” said Soichiro Monji from Daiwa SB Investments in Tokyo.

“Japanese equities hadn’t been rising much despite positive earnings results, so investors had started jumping at shadows, doubting whether they should really be holdings onto Japanese stocks.”

US equities had been on track for a 10th-straight record session Tuesday and the dollar was initially up after the JOLTS survey showed job openings hit a record in the US last month.

Positive US jobs data
Greg McKenna, an analyst at AxiTrader, said the data could bolster the Federal Reserve’s plan to start winding in its multi-trillion-dollar bond holdings balance sheet, expected to be announced next month.

“This is Janet Yellen’s favoured labour market indicator and could reinforce Yellen and her colleagues about the path they have set for policy normalisation,” he said.

The positive data also bolstered the greenback against the euro and the pound Wednesday.

Sydney was a rare bright spot in Asia-Pacific with stocks closing 0.4 percent up as Australia’s biggest bank posted record annual profits.

The Commonwealth Bank of Australia’s profits are closely watched and the results provide a guidance on the health of the country’s economy as it transitions away from a dependence on mining.

In commodities trading, US crude oil was wallowing around $49 to the barrel amid speculation that a predicted gain in American output will offset OPEC-led efforts to trim a global glut.

Chris Weston, chief market strategist at IG Markets, said signals around oil production were “messy”.

The US Energy Information Administration raised its 2017 and 2018 US crude output estimates to 9.9 million and 9.33 million barrels a day respectively, Weston said, but “on the other hand, we are hearing the UAE, Kazakhstan and Iraq will fully comply with the OPEC agreement” to cut oversupply.

— Bloomberg News contributed to this report —

Key figures around 0820 GMT
Tokyo – Nikkei 225: DOWN 1.3 percent at 19,738.71 (close)

Hong Kong – Hang Seng: DOWN 0.4 percent at 27,757.09 (close)

Shanghai – Composite: DOWN 0.2 percent at 3,275.57 (close)

Euro/dollar: DOWN at $1.1728 from $1.1748

Pound/dollar: UP at $1.3008 from $1.2989

Dollar/yen: DOWN at 109.67 yen from 110.39 yen

Oil – West Texas Intermediate: UP 1 cent at $49.18 per barrel

Oil – Brent North Sea: DOWN 3 cents at $52.11

New York – Dow: DOWN 0.2 percent at 22,085.34 (close)

London – FTSE 100: DOWN 0.5 percent at 7,503.39 points




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