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Global Stocks Tumble as N. Korea Tensions Escalate

Observers believe it won’t be enough to trigger a material reaction from the US-South Korea axis. It wouldn’t be surprising, then, if investors take advantage of this geopolitical fear to buy the dips
A television screen (top R) displays file news footage of North Korean leader Kim Jong-Un, at a foreign exchange brokerage in Tokyo on August 29, after the North fired a missile over northern Japan.A television screen (top R) displays file news footage of North Korean leader Kim Jong-Un, at a foreign exchange brokerage in Tokyo on August 29, after the North fired a missile over northern Japan.

World stocks tumbled and safe-haven assets jumped on Tuesday after North Korea fired a missile over northern Japan, fuelling worries of fresh tension between Washington and Pyongyang.

The pan-European STOXX 600 index fell more than 1% to a six-month low, also weighed down by the surge of the euro above a key level, while US futures fell as much as 0.85% on the missile news before paring losses, news outlets reported.

Japan’s Nikkei hit a four-month low before paring losses to end 0.5% down. South Korea’s Kospi, meanwhile, shed as much as 1.6%, helping to drag down MSCI’s broadest index of Asia-Pacific shares outside Japan by 0.5%.

“The North Korean escalation has triggered a significant risk-off move,” Alessandro Balsotti, head of asset management at JCI Capital Limited, said in his daily note to clients.

“However ... observers believe it won’t be enough to trigger a material reaction from the United States-South Korea axis. It wouldn’t be surprising, then, if investors take advantage of this geopolitical fear to buy the dips.”

North Korea fired a missile that flew over Japan and landed in the Pacific about 1,180 km off the northern region of Hokkaido in a sharp escalation of tensions on the Korean peninsula.

The dollar was down 0.6% at 108.63 yen after hitting its lowest level since mid-April despite Japan’s proximity to North Korea.

Against other currencies, the yen moved more sharply. The euro/yen fell as low as 129.63 in early Asia trade, compared with levels just under 131 on Monday. The Australian dollar was fetching as little as 85.67 yen in early Asia trade, compared with touching levels over 87 yen on Monday.

Also the safe-haven Swiss franc strengthened, with the dollar falling 0.6% to a one-month low against the Swiss currency.

Though the risk-averse mood prevailed broadly across financial markets, the euro appeared immune to the geopolitical news. The single currency surged above 1.20 to the dollar, breaching a key level as investors grew bullish about its outlook after the head of the European Central Bank refrained from talking about the currency’s recent strength and in the backdrop of brewing US fiscal problems, Reuters said.

Futures on the S&P 500 Index fell. September contracts dropped 0.6% in Hong Kong, paring a decline of as much as 0.9%.

US stock futures were a big early mover, with the Dow Jones industrial average mini futures dropping as much as 147 points to 21,644 in a knee-jerk reaction. That compared with the index's close on Monday at 21,808.40. The DJIA futures later regained some lost ground, trading down 109 points at 21,682.

Gold, Crude

Gold prices jumped 0.85% to $1,321 an ounce, hitting its highest level in more than nine months and rising for a third straight session.

The metal also drew support from uncertainty surrounding the Trump administration after remarks last week raised fears of a government shutdown.

Investors also rushed to the safety of US Treasuries, pushing down the 10-year yield to a low of 2.102%, its lowest since mid-November, while the yield on Germany’s 10-year government bond fell 3 basis points to 0.34%, the lowest since June 28.

“Financial markets think the only realistic option for the US and North Korea will be to sit down and talk at some point because other options are too costly for everyone involved,” said Masayoshi Kichikawa, chief strategist at Sumitomo Mitsui Asset Management.

"But no one can rule out the risk of accidents. Markets think the chicken game will continue for now and North Korea will remain a risk," he added.

Crude oil prices bounced back a tad on the back of supply disruptions in Colombia and Libya, a day after US crude futures dropped on worries that refinery shutdowns caused by flooding could boost inventory.

US West Texas Intermediate crude futures rose 0.26% to $46.69 a barrel after falling to as low as $46.15 in the previous session. US gasoline price, which surged as much as 7% to a two-year peak of $1.779 a gallon on Monday, traded at $1.726 in early Tuesday trade.

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