World stocks tumbled and safe-haven assets soared yesterday after North Korea fired a missile over northern Japan, fuelling worries of fresh tension between Washington and Pyongyang.
The risk-off move spread from Asia to Europe and a rally in the euro to above a key level chipped in to put regional stocks on track at one point for their biggest one-day loss in 11 months.
The pan-European STOXX index fell as much as 1.7 per cent to their lowest in six months before paring losses to trade down 1.3 per cent, while Wall Street futures pointed to sharp losses at the open.
Japan’s Nikkei hit a four-month low before paring losses to end 0.5 per cent down and South Korea’s Kospi shed as much as 1.6 per cent before ending down 0.2 per cent.
The MSCI World Index, which tracks stocks from developed economies, fell just 0.1 and remained above a five-week low hit earlier his month on jitters over North Korea, growing turmoil at the White House and a deadly attack in Spain.
North Korea fired a missile yesterday that flew over Japan and landed in the Pacific about 1,180 km off the northern region of Hokkaido in a sharp escalation of tensions on the Korean peninsula.
The unprecedented move raised worries that the crisis could further mount, sparking a rush into safe haven assets from the Japanese yen to the Swiss franc and the German bund. The dollar hit its lowest level since mid-April against the yen and was last down 0.7 per cent at 108.55.
The Japanese currency tends to benefit during times of geopolitical or financial stress because Japan is the world’s biggest creditor nation and there is an assumption that Japanese investors will repatriate funds should a crisis materialise.
Also the safe-haven Swiss franc strengthened, while gold, up 0.8 per cent to $1,320 an ounce, hit its highest level in more than nine months after three straight days of gains.
The metal also drew support from uncertainty surrounding the Trump administration after remarks last week raised fears of a government shutdown.
Though the risk-averse mood prevailed across financial markets, the euro appeared immune to the geopolitical news.
The single currency surged above 1.20 to the dollar, breaching a key level as investors grew bullish about its outlook after European Central Bank president Mario Draghi refrained from talking about the currency’s recent strength and in the backdrop of brewing US fiscal problems.
In commodities, crude prices dipped as the market grappled with the shutdown of some 13 per cent of refining capacity in the United States after a hurricane ripped through the heart of the country’s oil industry.
International Brent crude futures fell 0.7 per cent at $51.53 per barrel.
US gasoline price, which surged as much as seven per cent to a two-year peak of $1.7799 a gallon on Monday, traded at $1.7003 yesterday.