- U.S. President Trump steps up rhetoric on North Korea
- Dollar declines continue as investors flee to safe havens
- Australia stocks slide after global markets drop
Asian equity markets extended a global slide on Friday as tensions ramped up between the United States and North Korea, sending investors fleeing to less risky assets such the yen, the Swiss franc and U.S. Treasuries.
Overnight, Wall Street closed sharply lower after U.S. President Donald Trump issued a new round of fiery rhetoric, warning Pyongyang against attacking Guam or U.S. allies after it disclosed plans to fire missiles over Japan to land near the U.S. Pacific territory.
MSCI’s broadest index of Asia-Pacific shares outside Japan skidded 1.2 percent in its third session of declines, heading for a 2.1 percent drop for the week.
Australian shares were down 1.2 percent, set for a weekly loss of 0.5 percent. Japanese markets were closed for a holiday.
“What has changed this time is that the scary threats and war of words between the U.S. and North Korea have intensified to the point that markets can’t ignore it,” said Shane Oliver, head of investment strategy at AMP Capital in Sydney.
“Of course it’s all come at a time when share markets are due for a correction so North Korea has provided a perfect trigger.”
Many markets have climbed to record or multi-year highs, leaving them vulnerable to a sell-off.
Trump took specific aim at North Korean leader Kim Jong Un on Thursday, saying, he had “disrespected our country greatly,” and would not be “getting away with it.”
South Korea’s KOSPI fell 1.3 percent, taking its losses this week to nearly 2.7 percent.
The Korean won also continued to skid, sliding 0.4 percent to 1,146.2, below its 200-day moving average.
Chinese bluechips lost 0.75 percent, while Hong Kong’s Hang Seng was 1.6 percent lower.
If North Korea launches an attack that threatens the United States then China should stay neutral, but if the United States attacks first and tries to overthrow North Korea’s government China will stop them, a Chinese state-run newspaper said on Friday.
Trump’s threat earlier this week, to unleash “fire and fury” on Pyongyang if it attacked, was ultimately dismissed as bluster by many investors.
Trump’s second warning, however, has shaken markets that have been largely resilient this year, swatting away a slew of risks. These ranged from an investigation into Russia’s possible interference in the 2016 U.S. presidential election, to concerns about China’s risky debt levels, to stubbornly low inflation in the U.S.
The CBOE Volatility Index, the most widely followed barometer of expected near-term U.S. stock market volatility, rose the most in about 12 weeks.
The index closed at 16.04 overnight, the highest level since Nov. 8, when Trump was elected president.
On Wall Street overnight, the Nasdaq retreated 2.1 percent, while the S&P 500 was down 1.4 percent, and the Dow Jones Industrial Average pulled back 0.9 percent.
U.S. stock futures were marginally softer on Friday.
The MSCI World index slipped 0.1 percent, extending Thursday’s 1.1 percent drop, its biggest one-day slide since May 17, as U.S. President Donald Trump stepped up his rhetoric against North Korea.
The dollar extended losses against the yen to hit a new two-month low. It was down 0.15 percent at 109.065 yen, after retreating 0.7 percent on Thursday.
The yen is perceived as a safe haven because Japan is the world’s biggest creditor country and investors there have tended to repatriate funds in times of crisis.
“Given the speculative flows positioning for possible yen repatriation, we could see the psychologically significant 109.00 level give way,” Stephen Innes, head of Asia Pacific trading at OANDA, wrote in a note.
Low U.S. Treasury yields are also weighing on the dollar. The yeild on the benchmark 10-year Treasury yields fell as low as 2.197 percent overnight, their lowest level since June 28. They were at 2.201 percent on Friday.
The dollar pulled back 0.1 percent to $0.9635 Swiss francs on Friday, after dropping as much as 1.2 percent to a two-week low overnight.
The dollar was steady against a basket of six major currencies at 93.412 after falling 0.2 percent on Thursday, with disappointing U.S. inflation and jobs data adding to the greenback’s woes.
U.S. producer prices unexpectedly fell in July, recording their biggest drop in nearly a year, while another set showed the number of Americans filing for unemployment benefits unexpectedly rose last week.
Markets are now focused on U.S. consumer price data for July, due later in the session.
Spot gold prices were slightly lower at 1,285.22 an ounce, touching a two-month high earlier. They soared over 2 percent in the previous two sessions, and are set for a weekly gain of 2.2 percent.
U.S. crude futures extended losses from Thursday, when they plunged 2 percent on fears of slowing demand and lingering concerns over a global oversupply.
They were down 0.1 percent at $48.51 per barrel, on track for a weekly loss of 2.1 percent.
Global benchmark Brent lost 0.3 percent to $51.76, after Thursday’s 1.5 percent drop. It is poised to end the week down 1.3 percent.