Renewed worries about North Korea’s aggressive stance has impacted markets the world over. The state just conducted its biggest nuclear test ever on Sunday. North Korea launched its first missile over a main Japanese island last Tuesday for the first time since 2009. Rumor has it that Pyongyang is preparing to launch another long-range intercontinental ballistic missile.
With the US markets closed on Monday for Labour Day, it was the futures that took the hit in the US. The Dow Jones Futures (YMU7) went down by 53 points, 0.2%, to drop to 21.927.00. FactSet data reports that the futures actually dropped by a larger 103 points for a brief period, before stabilizing at 53 points. The S&P 500 Futures also dropped. The Futures (ESU7), went down by 7.70 points, 0.3%, to 2,466.50. The NASDAQ 100 Futures (NQU7) dropped by 20 points, 0.3%, down to 5,968.25.
The UK stock market also slipped with the news. The FTSE 100 index took a hit from the financial and industrial shares and dropped by 0.1% to 7,428.83. However, thanks to gains from other sectors like utilities, consumer services and basic materials, the FTSE 100 index was able to control its losses. The biggest loser on the FTSE 100 index was Standard Chartered Bank as it was Asia focused. Standard Chartered Bank shares dropped by 1.2%.
Europe also saw a negative reaction to the North Korean act of aggression, with almost all markets going down. The STOXX 600 dropped by 0.45%. The German DAX went down by 0.16%. The French CAC 40 in Paris went down by 0.21%. The Spanish IBEX 35 also went down by 0.71%. The volatility index for Europe, V2TX went up 1.6 points in response to the market nerves.
Asian stock markets saw a sharp drop in the morning, but stabilized as the day progressed. The broadest index of Asia-Pacific shares, the MIAPJ0000PUS, slipped 0.7%. South Korea’s Kospi (SEU) dropped down 1.7% in the early hours of trading, but later stabilized and closed the day down at 1.2%. The Hang Seng Index in Hong Kong (HSI) dropped by 0.7%, while in Australia, the S&P/ASX 200 (XJO) closed lower by 0.4%. The Nikkei stocks in Japan dropped by 0.9%, however this drop was controlled by the rise in the Yen, which gained almost 1% against the dollar at the start of trading.
With all the nervousness in the market, there has been an immediate sell off of risk assets. Especially in the Asian markets. Investors have moved towards the safe-haven assets like gold, the Japanese yen and sovereign bonds. Gold futures for December (GCZ7) gained by $12, or 0.9%, to touch $1,342.40 per ounce, reaching an 11-month high. The other safe-haven trader, the Yen (USDJPY) shot up against the dollar, at ¥109.49 to the dollar, vis-à-vis ¥110.27 per dollar on Friday. The Swiss Franc (CHF), another safe-haven currency, also saw a gain against the dollar, going up by 0.8% to 0.9579 per dollar.
The stock markets the world over have opened the week on a somber note. The US market, opening on Tuesday is not expected to open on a high note either, if the Futures market is any indicator of investor sentiment. The nuclear test by North Korea has led to the usual scramble for safe-haven assets. Usually, the panic dies down in a few days and it is back to business as usual. However, this time, analysts predict that the caution will last longer. The tests are taking place more frequently, and the US is responding with aggressive threats of retaliation.