Markets are rattled by US- North Korea tensions as Trump vows to respond to North Korea nuclear threats with “fire and furry”. The senior administration officials and Secretary of State Rex Tillerson tried to find different ways to explain the President’s comments and play down the tough talk.
Trump reinforced his threats stating “they should be very nervous, because things will happen to them like they never thought possible”. The standoff has unsettled the financial markets worldwide.
The DOW dropped by 200 pips and S&P 500 fell to sessions lows. The CBOE Volatility Index, the best gauge of fear in the market spiked by 45%.
The demand for safe havens has increased with the rising tensions. Investors have switched to gold, yen, swiss franc and government bonds. USDJPY dropped to record low and Gold rose to its highest level in almost 2 months.
The risk sentiment gets hit by the escalating geopolitical tensions as Japan and South Korea also warned of a strong response if North Korea launches missiles toward Guam. Trump intensifies its warnings to North Korea as he believes that even if Russia and China are backing the UN sanctions, it would not be enough or effective as negotiations have been going on for years. The Nikkei index fell since the “war of words” started.
Chinese media warn that the US is engaging in dangerous confrontations. “The US is more powerful than North Korea, but in a real showdown I don’t think they would beat North Korea. There is a Chinese saying: ‘A man with nothing to lose, doesn’t fear a man with something to lose” Hu Xijin, outspoken editor of the Global Times said.
The coming days will be crucial. Investors will be looking for a “diplomatic outcome” rather than militaristic conflict.
By: Deepta Bolaky