Donald Trump's 'fire and fury' warning sends stock markets lower, but lifts gold

'The typical text book trade is that investors rush for safe havens,' said Naeem Aslam, chief market analyst at Think Markets

(Reuters)

President Donald Trump's warning North Korea faced “fire and fury” and Pyongyang's response it was considering an attack on Guam drove investors out of stocks on Wednesday and into the safety of the yen, Swiss franc, gold and government debt.

European shares fell, following falls in Asia and on Wall Street. US stock index futures also fell, with the S&P 500 indicated to open down 0.4 per cent.

“Trump's comments about North Korea have created nervousness and the fear is if the President really means what he said: ”fire and fury“,” said Naeem Aslam, chief market analyst at Think Markets in London.

“The typical text book trade is that investors rush for safe havens.”

Mr Trump's remarks on Tuesday that North Korea would face “fire and fury like the world has never seen” pushed Wall Street lower, with only utilities making gains and drove the VIX “fear gauge” of expected volatility on the S&P 500 to its highest in almost a month. The VIX last stood at 11.49, just below Tuesday's high of 11.52.

A spokesman for the Korean People's Army said in a statement it was “carefully examining” plans for a missile attack on the US Pacific territory of Guam, which has a large U.S. military base.

In Europe, the pan-continental STOXX 600 index lost 0.8 per cent, with falls deepening after reports a car had rammed a group of soldiers in Paris, injuring six.

France's CAC dropped 1.2 per cent and Germany's DAX fell 1.1 per cent.

Tokyo's Nikkei 225 share index closed down 1.3 per cent at its lowest since 1 June as the strong yen hit exporters, while South Korea's KOSPI index fell 1.1 per cent to seven-week lows.

South Korea's won currency dropped 0.9 per cent against the dollar to its lowest close since 13 July.

MSCI's main index of Asia-Pacific shares, excluding Japan, was last down 0.5 per cent. Chinese blue chips closed flat but Hong Kong's Hang Seng index was last down 0.2 per cent.

Instead, investors turned to the traditional safe-haven assets sought in troubled times, the Japanese yen strengthened 0.5 per cent to 109.73 to the dollar, an eight-week high, and the Swiss franc reversed a two-week losing streak and gained nearly 1 per cent to 0.9650 per dollar. The Swiss currency was also on track for its biggest daily gain against the euro since last year's Brexit vote.

“Heightened geopolitical risks overnight have seen the markets flip from risk-on to risk-off and we have to wait and see how long this move runs before adding some positions,” said Viraj Patel, an FX strategist at ING in London.

The dollar index, which measures the US currency against a basket of major peers, slipped 0.1 per cent as US Treasury yields fell.

The euro dipped 0.1 percent to $1.1737 but the single European currency has been slipping this week against the dollar, having hit a more than 2 1/2-year high of $1.1892 on 2 August.

Yields on core government debt fell. Ten-year US yields dropped 4 basis points to 2.242 percent and German equivalents fell 3 bps to 0.44 per cent, their lowest since 30 June.

Gold rose 0.6 per cent to $1,268 an ounce.

“We've had some competing forces play out over the past 12 hours - the US dollar was stronger off economic data, but that was quickly reversed with President Trump's comments about North Korea earlier today (Wednesday),” said ANZ analyst Daniel Hynes.

Oil prices fell for a third day on doubts over OPEC's ability to limit supply. Brent crude dipped 5 cents to $52.18 a barrel.

Reuters