Home > Blog > Markets commentary > Havens Consolidate Rally on Crisis; Stocks Decline

The yen and gold consolidated gains after fresh threats from North Korea sent money into haven assets. Stocks declined with U.S. and European equity futures as investors focused on upcoming comments from central bank policy makers.

North Korea had injected a note of caution to markets on Monday after its foreign minister declared that the nation can shoot down U.S. warplanes. Declines among Asian equities were relatively muted as the U.S. continues to pursue denuclearisation through diplomatic channels. Oil traded close to a five-month high after Turkey threatened to shut down Kurdish crude shipments through its territory.

Markets have been oscillating between a risk-on, risk-off stance since early August amid simmering tensions on the Korean Peninsula. Equities have pulled away from recent record highs as the U.S. and North Korea continue to trade threats, and European political risks emerged after the weekend German election that returned Chancellor Angela Merkel with eroded support.

North Korean Foreign Minister Ri Yong Ho described President Donald Trump’s recent comments as tantamount to a declaration of war. The White House denied it has declared war on Pyongyang, while Trump’s national security adviser said the U.S. has four or five different scenarios for how the crisis will be resolved, and “some are uglier than others.” China’s ambassador to the UN told Reuters the situation is "getting too dangerous."

Geopolitics will share center stage with a speech by Federal Reserve Chair Janet Yellen on Tuesday, which will be parsed as policy makers continue to disagree on whether to raise U.S. interest rates again this year. Investors see a roughly 60 percent chance that rates will be increased again in December following moves in March and June.

What to watch out for this week:

  • Later in the week, Bank of England Governor Mark Carney speaks, as does soon-to-depart Fed Vice Chairman Stanley Fischer.
  • European Union chief Brexit negotiator Michel Barnier and U.K. counterpart David Davis begin their next round of negotiations.
  • Household spending last month in the U.S. probably posted the smallest gain since February as motor-vehicle sales shifted into a lower gear, economists forecast government figures to show.
  • The euro-area inflation rate may have accelerated a touch to 1.6 percent in September from 1.5 percent but the core will probably remain at 1.2 percent when data is out on Friday.

Here are the main moves in markets:

Stocks

  • Japan’s Topix index closed flat after trading in a narrow range. South Korea’s Kospi index fell 0.3 percent and Australia’s S&P/ASX 200 Index lost 0.2 percent.
  • Hong Kong’s Hang Seng Index eased 0.2 percent after slumping 1.4 percent on Monday as Chinese property developers tumbled on fresh mainland home curbs. Read how one of the world’s most extreme stock rallies gets a reality check.
  • The Philippine Stock Exchange Index declined 1.4 percent, the most in Asia, on profit-taking after the benchmark reached a record high on Sept. 18.
  • Futures on the Euro Stoxx 50 fell 0.1 percent as of 7:33 a.m. London time.
  • Contracts on the S&P 500 Index slipped 0.1 percent. The underlying gauge lost 0.2 percent, while the Nasdaq Composite Index declined 0.9 percent following a selloff in technology stocks.

Currencies

  • The Bloomberg Dollar Spot Index was down less than 0.1 percent. It climbed 0.4 percent to the highest in more than three weeks.
  • The yen added 0.2 percent to 111.54. It gained 0.2 percent on Monday.
  • The won fell 0.5 percent to 1,137.05 per dollar.
  • The euro was at $1.1853 after falling 0.9 percent.
  • The Australian dollar bought 79.39 U.S. cents. The New Zealand dollar dropped 0.4 percent, adding to a 0.9 percent slide on Monda

Bonds

  • The yield on 10-year Treasuries was steady at 2.22 percent, maintaining a three basis point drop on Monday.
  • Australia’s 10-year bonds yield fell three basis points to 2.77 percent.
  • German 10-year bund yields were little changed at 0.40 percent. They dropped five basis points on Monday.

Commodities

  • Gold was steady at $1,310.91 an ounce, after jumping 1 percent on Monday.
  • West Texas Intermediate crude was down 0.2 percent to $52.13 a barrel after rising 3.1 percent on Monday to the highest since April.

Source: Bloomberg