- Swiss franc gains vs dollar, euro; yen up vs USD
- Yields on U.S. Treasuries fall, oil ticks up
- Gold jumps to highest in nearly two months
U.S. President Donald Trump’s warning to North Korea and Pyongyang’s threat of possible armed retaliation drove investors out of stocks and other risky assets on Wednesday and into textbook safe-havens like gold and Treasuries.
Trump’s remarks on Tuesday that North Korea would face “fire and fury like the world has never seen” weighed on Wall Street and drove up the VIX “fear gauge,” or the cost of protection against a drop in the S&P 500.
The VIX rose further on Wednesday, as far as 12.63, its highest in more than a month.
The Korean People’s Army said on Wednesday it was “carefully examining” plans for a missile attack on the U.S. Pacific territory of Guam, which has a large U.S. military base. U.S. Defense Secretary Jim Mattis told Pyongyang it should stop any actions that would lead to the “end of its regime and the destruction of its people.”
But while investors appeared to favor safe-haven assets, some bargain seekers helped Wall Street’s three major indexes pare losses.
“Geopolitics splashed cold water on the markets,” said JJ Kinahan, chief strategist at TD Ameritrade.
“There’s uncertainty and caution as investors nervously eye the next foreign policy moves.”
Trump tweeted on Wednesday about the strength of the American nuclear arsenal, but expressed hope it would not need to be used. U.S. Secretary of State Rex Tillerson said he did not believe there was an imminent threat.
The Dow Jones Industrial Average fell 70.4 points, or 0.32 percent, to 22,014.94, the S&P 500 lost 5.51 points, or 0.22 percent, to 2,469.41 and the Nasdaq Composite dropped 31.19 points, or 0.49 percent, to 6,339.27.
The S&P fell as much as 0.52 percent at its session low.
The pan-European FTSEurofirst 300 index lost 0.75 percent and MSCI’s gauge of stocks across the globe shed 0.40 percent.
Emerging market stocks lost 1.03 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.63 percent lower, while Japan’s Nikkei lost 1.29 percent.
Traditional safe-haven currencies including the Swiss franc and Japanese yen rose against the U.S. dollar, while those from emerging markets slid.
“Obviously we are looking at the increased tensions between the U.S. and North Korea,” said Brad Bechtel, managing director FX at Jefferies in New York.
“Tensions are still high and not going away at the moment. Safe-havens are bid and markets are a little uneasy.”
South Korea’s won dropped 0.9 percent against the U.S. dollar to its lowest close since July 13.
The Swiss franc reversed a two-week losing streak, rising rose 1.12 percent versus the greenback at 0.96 per dollar.
The dollar index fell 0.1 percent, with the euro up 0.01 percent to $1.175.
The Japanese yen strengthened 0.35 percent versus the greenback at 109.94 per dollar. Japan is the world’s biggest creditor country and there is an assumption investors there will repatriate funds in a crisis.
Sterling was last trading at $1.3005, up 0.12 percent on the day.
The Swiss franc was 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 1.1 percent at 1.1321 per euro.
Yields on core government debt fell.
Benchmark U.S. 10-year notes were last up rose 11/32 in price to yield 2.2423 percent, from 2.282 percent late on Tuesday.
The 30-year Treasury bond rose 31/32 in price to yield 2.8191 percent, from 2.867 percent late on Tuesday.
“The most visible impact of escalating verbal threats between North Korea and President Trump comes at the long end of the U.S. Treasury curve,” said Jim Vogel, interest rates strategist at FTN Financial in Memphis.
Oil prices edged higher after a report showed U.S. refineries processed record amounts of crude in the latest week, eating into inventories, although a surprise jump in gasoline stockpiles limited gains.
U.S. crude rose 0.69 percent to $49.51 per barrel and Brent was last at $52.66, up 1 percent on the day.
Gold hit its highest in almost two months after Trump added to the geopolitical anxiety by boasting of the strength of the U.S. nuclear arsenal.
Spot gold added 1.2 percent to $1,275.60 an ounce. U.S. gold futures gained 1.50 percent to $1,281.50 an ounce.
Copper lost 0.39 percent to $6,455.00 a tonne.