Asian stocks, dollar extend slide as U.S.-North Korea tensions rise

Asian stocks slumped on Friday as tensions ramped up between the U.S. and North
Korea, sending investors fleeing to less risky assets such as gold, the yen and
U.S. government bonds.

South Korea’s KOSPI fell 1.4 per cent, taking its losses this week to nearly
3 per cent.

The Korean won also continued to skid, sliding 0.3 per cent to 1,145 won to
the dollar, after earlier sinking to its lowest level in a month.

MSCI’s
broadest index of Asia-Pacific shares outside Japan dropped 0.6 per cent in its
third session of declines, heading for a 1.5 per cent drop for the week.

Australian shares were down 1.5 per cent, set for a weekly loss of 0.8 per
cent. Japanese markets were closed for a holiday.

Overnight, Wall Street closed sharply lower after Trump, with fiery rhetoric,
warned 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.

Many markets had already been at record or multi-year highs after an extended rally, leaving
them vulnerable to a sell-off.

“We’re not very oversold yet so the market still has more downside left to
it. What we’re seeing today is political tensions over North Korea and the
United States … making people nervous,” said Robert Pavlik, chief market strategist at Boston Private
Wealth in New York.

“We’re still close to the all-time high so that makes people a little nervous
too, so they might say now might be the time to take a little bit of money off
the table.”

Trump took specific aim at North Korean leader Kim Jong Un, saying,
he had “disrespected our country greatly,” and would not be “getting away with
it.”

On Wall Street, the Nasdaq
retreated 2.1 per cent, while the S&P 500 was down 1.4 per cent, and the Dow
Jones Industrial Average pulled back 0.9 per cent.

U.S. stock futures were marginally softer on Friday.

The MSCI World index was slightly lower, extending Thursday’s 1.1 per cent
drop, its biggest one-day slide since May 17, as U.S. President Donald Trump
stepped up his rhetoric against North Korea.

“The latest threats over North Korea have finally escalated to the point
where market has been obliged to react,” Ric Spooner, chief market analyst at CMC Markets,
wrote in a note.

“U.S. markets had previously been becalmed amidst the Goldilocks scenario of
strong profit growth, low interest rates and full valuations. Difficult to
assess political risk is now intruding on this scenario.”

The dollar extended losses against the yen to hit a new two-month low. It was
down 0.1 per cent at 109.07 yen, after retreating 0.8 per cent on Thursday.

Japan is the world’s biggest creditor country and there is an assumption that
investors there will repatriate funds in a crisis.

Weakness in U.S. Treasury yields may also be supporting the yen, some
analysts said.

U.S. Treasury yields fell to as low as 2.197 per cent, their lowest level
since June 28, overnight. They were at 2.201 per cent on Friday.

The dollar eased slightly against a basket of major currencies to 93.356.

Gold prices rose 0.2 per cent to $1,287.30 an ounce, after surging over 2 per
cent in the previous two sessions to a two-month high. It is set for a weekly
gain of 2.4 per cent.

U.S. crude oil crude futures were little changed at $48.59 per barrel. They
plunged 2 per cent on Thursday on fears of slowing demand and lingering concerns
over a global oversupply. It is on track for a weekly loss of 2 per cent.

Global benchmark Brent was marginally lower at $51.88, after Thursday’s 1.5
per cent drop. It is poised to end the week down 1 per cent.

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