World shares and oil pulled back and bonds and gold were back in favour yesterday, as a long-range ballistic missile test by North Korea and July 4 holidays for United States markets restricted risk appetite.
Asian shares were pushed lower and South Korea’s won slid to a 16-week low after the North’s missile landed in Japanese waters amid claims from Pyongyang that it could now strike “anywhere in the world”.
Europe dropped too as the first fall in oil prices in nine days pushed down commodity stocks and traders also cashed in some of gains made by the STOXX 600 on Monday which had been the biggest in over two months.
Traditional safety plays fared well amid the caution.
The Japanese yen and gold were both higher, as were European bonds and Treasuries, which have been clobbered by recent signs that the era of emergency stimulus and ultra low interest rates might be coming to an end.
The dollar lost 0.2 per cent on the yen to leave it buying 113.19 yen. It made almost as much back against the high flying euro however, leaving the six currency dollar index steady at 96.259.
It had seen its biggest jump since the start of March overnight, as a stronger-than-expected rise in the June Institute of Supply Management (ISM) national factory activity index also propelled the 10-year Treasury yield to its highest since mid May.
There were increasing signs that alongside the geopolitical jitters, higher global borrowing rates and the dollar were starting to pressure emerging markets after their stellar start to the year.
MSCI’s widely-tracked emerging equity index saw its sharpest one-day drop in nearly three weeks and most Asian currencies were weaker.
MSCI’s broadest index of Asia-Pacific shares outside Japan ended down 0.6 per cent.
Japan’s Nikkei surrendered gains to end 0.1 per cent down, South Korea’s KOSPI closed 0.6 per cent lower, though Hong Kong was hardest hit by the regional jitters as it slumped as much as two per cent at one point.
Tokyo, reacting to the North Korea missile test yesterday, strongly protested what it called Pyongyang’s clear violation of UN resolutions, and Japanese Prime Minister Shinzo Abe said he would ask the presidents of China and Russia to play more constructive roles in efforts to stop Pyongyang’s arms programme.
Commodity markets also saw a shift. Gold was shining at $1,224 an ounce while oil posted its first session of losses in nine, ending their longest run of gains since February 2012.
US crude slipped 0.5 per cent to $46.90 a barrel while global benchmark Brent dropped to $49.50 as traders cashed in some of gains from a 3.7 per cent leap – its biggest one-day gain since December 2016 – on Monday.