Shares and other risk assets barely moved and gold fell yesterday as traders paid little attention to the latest missile test by North Korea, shifting their focus to where and when interest rates will go up.
London, Frankfurt and Paris were a shade lower and futures pointed to a steady Wall Street session after Pyongyang fired a second test missile in as many weeks over Japan.
The yen was also pushed lower to 111.2 per dollar in the currency markets, but that too was a continuation of trend.
The Japanese currency has seen its biggest fall this week in 10 months while the dollar headed for its biggest rise since April, thanks to a revival in US inflation data and bets the Federal Reserve could raise rates again this year after all.
Britain’s pound was the other main standout, rising to a 14-month high of $1.3430 as the Bank of England reiterated that it might soon raise interest rates for the first time in a decade.
Sterling was also on course for its best week in over eight years on a trade-weighted basis and since November 2016 against the euro.
The BoE signals fed into bond markets, too. Yields pushed up after dipping overnight on the geopolitical tensions. Safe-haven gold was also heading for its biggest weekly drop since July.
North Korea’s latest test missile flew over Japan’s northern island of Hokkaido before landing about 3,700km into the Pacific Ocean, which would be far enough to reach the US Pacific territory of Guam.
Germany’s 10-year government bond yield, the benchmark for the region, inched up to 0.43 per cent to flirt with its biggest weekly rise since late June.
US yields have also jumped. US Fed funds rate futures yesterday were pricing in a roughly 45 per cent chance the Fed will raise rates by December, versus around 25 per cent at the start of this week.
US stock futures pointed to an almost flat start for the S&P 500, which is on track for a near 1.5 percent rise this week after another run of record highs.
Japan’s Nikkei gained 0.5 per cent and a more than three per cent jump gave it its best week since November in a directly inverse move to the yen.
Oil prices largely held the gains that had tested multi-month highs the previous day as the clean-up after hurricanes in the United States meant a firmer tone for demand.
Brent crude futures traded at $55.66 per barrel, up 0.3 per cent on the day and 2.5 per cent on the week. They hit a five-month high of $55.99 on Thursday.