“Investors sell stock, rush to safe havens, assess the situation, and then buy the dips as tension eases”, said Hussein Sayed, chief market strategist at brokers FXTM.
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European and Asian shares dropped after the S&P 500 suffered its biggest one-day fall in three weeks on Tuesday as us investors sold in reaction to North Korea’s sixth and biggest nuclear weapons test on Sunday.
As with many political risk plays over the past couple of years, market moves suggested a reluctance to price in tail risks on every possible bad outcome and more of a focus on the prosaic but upbeat global economic picture. North Korea’s response to that was a warning for the United States that they were prepared for further strikes. The SPDR Gold Shares exchange-traded fund GLD, +1.11% was up 0.2%.
“However. nothing has changed in the metals world in the last 24 hours, warehouse stocks are still at very low levels. the global economy is growing across the board and metal consumption will rise as a outcome”.
In the currency market, the yen, which usually gains on risk aversion due to Japan’s net creditor nation status, gained 0.4 percent to 109.32 yen to the dollar, near Monday’s high of 109.22 yen.
As for other precious metals, silver for December delivery fell 3.1 cents, or 0.17 percent, to close at 17.91 dollars per ounce.
Earlier this week a North Korean diplomat threatened that his country would deliver “gift packages” to the United States if the latter continues to put pressure on Pyongyang.
The Dow Jones Industrial Average fell 234 points, or 1.07%, to 21,753, the S&P 500 lost 19 points, or 0.76%, to 2,458 and the Nasdaq Composite dropped 60 points, or 0.93%, to 6,376.
On Monday, South Korea’s defense ministry said it was still seeing signs that Pyongyang plans to launch more ballistic missiles.
Despite the dollar’s weakness, the euro struggled to make progress as the overhang of large long euro positions and a European Central Bank policy meeting later in the week kept investors on the sidelines. The Swiss franc also strengthened from 0.9648 per dollar to 0.9549.
Cautious sounding comments from a Federal Reserve policymaker then knocked the dollar lower, taking it to a one-week low of 109.16 yen as us trading gained momentum.
The euro was 0.1 percent weaker on the day at $1.1928, having hit its strongest since January 2015 last week. Adding to pressure on the dollar, Federal Reserve Governor Lael Brainard said on Tuesday that inflation was “well short” of target, so the Fed should be cautious about raising USA interest rates.
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“Today the risk-off trade really is North Korea front and center”, said Jeff Zipper, managing director of investments at U.S. Bank Private Wealth Management. US shares were poised for a flat opening, with Dow futures and the broader S&P 500 futures unchanged.
