Nuclear nerves wipe $1 trillion off world stocks

Saturday, 12 August 2017 00:55 - - {{hitsCtrl.values.hits}}

LONDON (Reuters) - The damage inflicted on world stocks this week by the escalating war of words over North Korea topped $1 trillion on Friday, as investors again took cover in the yen, the Swiss franc, gold and government bonds.

With the tense mood pushing European shares down for a third day and Wall Street set to fall again, global stocks were on course for their worst week since Donald Trump won November’s U.S. presidential election.

Now installed in the White House, Trump issued a new warning to Pyongyang on Friday, tweeting: “Military solutions are now fully in place, locked and loaded, should North Korea act unwisely.”

North Korea had responded to Trump’s previous promise to unleash “fire and fury”, with a threat to land a missile near the U.S. Pacific territory of Guam.

Japanese markets were closed for a holiday but the yen powered on, hitting an eight-week high of 108.91 yen to the dollar, adding to its biggest weekly gain since May.

The Swiss franc, the other traditional safety-play among currencies, has benefited too. Two weeks ago it saw its biggest weakly fall against the euro since the start of 2015. This week has seen its biggest rise since June 2016.

And in bond markets, 10-year U.S. Treasuries and Germany’s ultra-safe government bonds, known as Bunds, were trading at their highest prices since June.

Many world stock markets have hit record or multi-year highs in recent weeks, leaving them vulnerable to a sell-off, and the tensions over North Korea have proved the trigger.

The CBOE Volatility Index, the most widely followed barometer of expected near-term U.S. stock market volatility, hit its highest mark since 8 November, when Trump was elected president.

The Chinese volatility gauge jumped by the most since January 2016, to its highest level in more than seven months. The euro zone’s version is at its highest since April, when France’s election was rattling the region.

Overnight, MSCI’s broadest index of Asia-Pacific shares outside Japan had skidded 1.55%, its biggest one-day loss since mid-December, to leave it down 2.5% for the week.

South Korea’s KOSPI fell 1.8% to an 11-1/2-week low, but its losses for the week are a relatively modest 3.2%. “Pretty remarkable, perhaps even extraordinary, considering,” Strategist at fund manager BlueBay Tim Ash said.

The Korean won also continued to skid, down 0.45% to 1,147.2, falling below its 200-day moving average for the first time in a month.

Australian shares were down 1.3%, set for a weekly loss of 0.6% and Chinese and Hong Kong bluechips lost 1.6% and 1.9% respectively.

The market’s backstop safety asset, gold, edged up to its latest two-month high of $1,288 an ounce. It soared over 2% in the previous two sessions, and is set for a weekly gain of 2.25%.