North Korea standoff wipes $1trn off global stocks
The damage inflicted on world stocks this week by the escalating war of words over North Korea topped $1trn yesterday 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 election. He issued a new warning to Pyongyang, tweeting: "Military solutions are now fully in place, locked and loaded, should North Korea act unwisely."
North Korea had responded to Mr Trump's previous promise to unleash "fire and fury", with a threat to land a missile near the US 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 yen tends to benefit during times of geopolitical or financial stress as Japan is the world's biggest creditor nation and there is an assumption that Japanese investors there will repatriate funds in a crisis.
The Swiss franc, the other traditional safety-play among currencies, has benefited too. Two weeks ago it saw its biggest weekly fall against the euro since the start of 2015.
This week has seen its biggest rise since June 2016. In bond markets, 10-year US Treasuries and Germany's ultra-safe government bonds were trading at their highest prices since June.
"For quite some time the market hasn't really reacted to things on the Korean peninsula because we know from the past it is largely North Korean sabre-rattling, and it may yet be. But with the rhetoric having gone to a different level, the market just can't afford to take that risk," said BNY Mellon FX strategist Neil Mellor.
Many world stock markets have hit record or multi-year highs in recent weeks, leaving them vulnerable to a sell-off, and the tensions have proved the trigger.
The so-called fear gauge - the CBOE Volatility Index (VIX), the most widely followed barometer of expected US stock market volatility, hit its highest since November 8, when Mr Trump was elected president. (Reuters)