U.S. President Donald Trump’s warning North Korea faced “fire and fury” and Pyongyang’s threat of possible retaliation drove investors out of stocks and into the yen, Swiss franc, gold and government debt.
U.S. stock indexes opened lower on Wednesday as investors turned risk averse. Gold rose 1.2%, while the Swiss franc was on track to post its biggest single day increase against the euro in about two-and-a-half years.
‘Rush for safe havens’
“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 on Tuesday and drove up the VIX “fear gauge” of expected volatility on the S&P 500 higher. The VIX rose further on Wednesday, rising as far as 12.11, its highest in almost a month.
A spokesman for the Korean People’s Army said in a statement on Wednesday it was “carefully examining” plans for a missile attack on the U.S. Pacific territory of Guam, which has a large U.S. military base.
France’s CAC dropped 1.6% and Germany’s DAX fell 1.3%. Tokyo’s Nikkei 225 share index closed down 1.3% at its lowest since June 1 as the strong yen hit exporters, while South Korea’s KOSPI index fell 1.1% to seven-week lows.
South Korea’s won currency dropped 0.9% against the dollar to its lowest close since July 13.
MSCI’s main index of Asia-Pacific shares, excluding Japan, was last down 0.6%. Chinese blue chips closed flat but Hong Kong’s Hang Seng Index fell 0.4% .
Instead, investors turned to assets that tend to benefit in times of geopolitical and financial stress.
The Japanese yen strengthened by 0.5% to about 109.70 per dollar. Japan is the world’s biggest creditor country and there is an assumption investors there will repatriate funds in a crisis.
Swiss franc on a roll
The franc reversed a two-week losing streak and gained 1.1% to as firm as 0.9611 per dollar. The Swiss currency was also on track for its biggest daily gain against the euro since the Swiss National Bank removed its cap on the currency in January 2015. It was last up 1.2% at 1.1305 per euro.
“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.
