HONG KONG (AFP) – Asian equities headed back into the red yesterday afternoon, wiping out a nascent recovery in the morning as spiralling tensions over North Korea lingered for a second day.
Markets had taken heart from reassuring words from the US Secretary of State Rex Tillerson seeking to play down the escalating war of words between Washington and Pyongyang.
But losses soon resumed, with Tokyo edging down as the Nikkei again came under pressure from the strength of the safe-haven yen, which hit eight-week highs Wednesday against the dollar.
Hong Kong shed more than one per cent in afternoon trade and Shanghai closed down, while Seoul shares continued their sell-off after slumping Wednesday, with the won again softening.
European bourses also sank in early trade yesterday, after the Dow recorded its second straight negative close Wednesday.
Angry exchanges over Pyongyang’s nuclear and missile programmes are stoking fears of a miscalculation that could lead to catastrophic consequences on the Korean peninsula and beyond.
“The North Korea situation is still unstable and investors are controlling risk and taking profit after recent gains,” said Sam Chi Yung, a Hong Kong-based strategist at South China Financial Holdings.
The sabre-rattling – sparked when President Donald Trump stunned the world with an apocalyptic warning to unleash “fire and fury” on North Korea – continued yesterday as Pyongyang mocked the US leader as “bereft of reason”.
The reclusive state raised the stakes further with a detailed plan to send a salvo of missiles towards the US territory of Guam.
Markets had stabilised earlier as Tillerson sought to play down tensions, saying “there is any imminent threat” to Guam, and expressed hope for diplomacy would prevail.
However, the classic safe-haven asset gold rose again yesterday to around $1,278 an ounce after surging 1.3 per cent Wednesday as investors reacted with dismay to the deepening crisis.
“Tensions are high. Markets have taken a little notice,” said Greg McKenna, an analyst at AxiTrader.
On commodities markets, oil advanced with US crude near $50 a barrel after figures from industry group the American Petroleum Institute showed a sharp decrease in stockpiles, a clear indication of the easing supply glut.
“A consistent drawdown in inventories is the best indicator of the tightness coming in the oil markets which can feed prices higher in time,” McKenna noted.
Following two days of meetings in Abu Dhabi, leading producers reiterated their commitment to output caps set earlier this year to support prices.
Despite the ongoing turmoil, investors’ focus was slowly returning to the US economy after Chicago Federal Reserve president Charles Evans said Wednesday it would be “reasonable” to announce the beginning of a reduction of the Fed’s balance sheet next month.
But he also cautioned disappointing inflation data may delay interest rate increases.
Markets watchers were awaiting a speech by New York Fed president William Dudley ahead of today’s inflation data.