Main moves of currencies: British Pound little changed, Euro steady
Financial markets are once again showing a short-lived reaction to a North Korean missile launch as investors become accustomed to a cycle of provocations followed by diplomatic censure and sanctions that fall short of shutting down the dictatorship.
South Korea’s Kospi index rebounded from an earlier decline and U.S. stock futures pared losses, while equities in Tokyo traded sideways, showing a muted broader market reaction to the latest North Korean provocation. The yen flat-lined after an initial jump. Tensions had already resurfaced on Thursday, when the Nikkei reported that Pyongyang was preparing another missile launch. Ten-year Treasury yields were little changed after data showing U.S. inflation quickened, supporting an uptick in expectations for a Federal Reserve rate hike.
“I wouldn’t necessarily say this is an escalation,” James Soutter, portfolio manager at K2 Asset Management in Melbourne, said of the missile launch. “This is more of a continuance of provocation. Hence markets won’t like it, but I don’t think it’s necessarily the precursor to a sustained market pullback.”
Markets are showing signs of becoming conditioned to actions from North Korea, which has launched more than a dozen missiles this year and tested a nuclear device. Initial reactions have become short lived — stocks swiftly recovered from losses following another missile over Japan on Aug. 29. Global equities climbed to a record high this week as earnings and faith in economic growth overshadow the escalation of tensions on the Korean Peninsula. The MSCI All Country World Index is poised for its third week of gains in four.
“This missile firing, we have seen it before and we also now sort of know how maybe the international community will respond,” Intellectus Partners chief economist and credit portfolio management head Ben Emons told Bloomberg Television. “You get a classic risk-off reaction that subsequently gets muted again.”
Thursday’s U.S. economic data lent support to those expecting a further run up in U.S. bond yields as inflation topped estimates and traders increased bets on another rate hike in 2017. While China data this week softened, the signals emanating from financial markets remain decidedly bullish.
Meanwhile, Bitcoin has slumped 20 percent so far this week. China has notified regional regulators that it aims to stop exchange trading of cryptocurrencies by the end of September, according to people familiar with the matter.
Still to come this week:
- U.S. retail sales, consumer sentiment and industrial production data are due Friday.
- Chinese monthly lending figures are due.
Here are the main moves in markets:
Stocks
- The Topix index rose 0.4 percent as of 2:15 p.m. Tokyo time. South Korea’s Kospi index was little changed after dropping as much as 0.5 percent, while Australia’s S&P/ASX 200 Index fell 0.7 percent.
- Futures on the S&P 500 Index lost less than 0.1 percent. The underlying gauge closed 0.1 percent lower on Thursday.
- Hong Kong’s Hang Seng Index swung between gains and losses, and the Shanghai Composite Index was also lower.
Currencies
- The Bloomberg Dollar Spot Index fell 0.1 percent, after a 0.3 percent drop on Thursday.
- The yen traded 0.2 percent lower at 110.42 per dollar. It gained as much as 0.6 percent earlier.
- The British pound was little changed after gaining 1.4 percent Thursday, and was at $1.3402. The Bank of England signaled the possibility of stimulus reduction Thursday.
- The euro was steady at $1.1914.
Bonds
- The yield on 10-year Treasuries were down a little less than 1 basis point, at 2.18 percent.
- Ten-year Australian bond yields rose about two basis points to 2.75 percent.
Commodities
- West Texas Intermediate crude slipped 0.2 percent to $49.77 a barrel after gaining 1.2 percent on Thursday and rising for a time above $50.
- Gold was flat at $1,329.88 an ounce.
Source: Bloomberg – Yen Loses Gains, Stocks Mixed Amid Missile Fatigue: Markets Wrap
