Escalating US-North Korea tensions hit markets

Volatility rises from US to Japan as Trump vows ‘fire and fury’ response to Pyongyang

President Donald Trump issued an apocalyptic warning to North Korea on Tuesday, saying it faces “fire and fury” over its missile program, after US media reported Pyongyang has successfully miniaturized a nuclear warhead. Photograph: Getty

Stocks in Asia declined with US equity index futures and the South Korean currency tumbled as investors took a risk-off approach after the US and North Korea exchanged threats amid escalating tensions between the two nations. The yen and gold climbed.

Japan's Topix index had the biggest slide in almost three months, while European-index futures fell as investors took advantage of the latest volley of words to take some profit after global equities climbed to record highs this week.

Volatility gauges from the US to Japan rose after president Donald Trump said in response to a Washington Post report on North Korea's nuclear capabilities that further threats from the country would be met with "fire and fury". North Korea said it is examining an operational plan for firing a ballistic missile toward Guam.

"The market is realising that economies are doing well enough for both the Fed and the ECB to remove stimulus," Ken Peng, a Hong Kong-based investment strategist at Citi Private Bank, said.


“This is going to make a lot of people a bit more nervous about liquidity. In that environment, these geopolitical headlines will have more impact, more punch. The talk is more intense than what it used to be.”

Markets have been lifted from a state of inertia as geopolitical tensions have ramped up following the United Nations’ decision to impose sanctions against North Korea’s rapidly developing nuclear weapons program, leading to the latest war of words between the countries.

South Korea’s benchmark Kospi index lost 1.1 per cent. The won declined as much as 0.8 per cent, falling to a three-week low, while the cost of insuring five-year South Korean sovereign bonds from non-payment climbed and the Kospi 200 volatility index jumped as much as 30 per cent.

China’s producer price gains held steady in July on surging commodity prices. The numbers came ahead of Friday’s US inflation numbers which may be key to the interest-rate outlook for the world’s biggest economy.

Global equities remain within earshot of an all-time high as the majority of corporate earnings continue to exceed expectations.

- Bloomberg