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North Korea talk drags stocks lower; gold, yen rise

14 August 2017

Growing tension between the USA and North Korea boosted the Swiss franc, the Japanese yen, gold and government bonds as investors sought out traditional safe havens at a time of geopolitical uncertainty.

Several indexes closed lower overnight.

Amid the hot rhetoric, US stocks sold off sharply on Thursday, with the S&P 500 falling more than 1 percent. Spot gold reached a two-month high.

Russian Foreign Minister Sergey Lavrov warned on Friday that a war between the US and North Korea would be disastrous, and said his country was proposing - in conjunction with China - a path to a peaceful resolution of the nuclear standoff.

"We're not very oversold yet so the market still has more downside left to it".

"We would now be careful with a whiff of risk aversion in the air and, by extension, also stay away from shorts in the rates market", RBC's global macro strategist Peter Schaffrik said.

"We're still close to the all-time high so that makes people a little nervous too, so they might say now might be the time to take a little bit of money off the table".

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Shanghai's main index also tumbled 1.6 percent to 3,208.54 while Australia's S&P/ASX 200 dropped 1.2 percent to 5,693.10.

S&P 500 e-mini futures were down 0.3 percent, pointing to weakness on Wall Street later in the day. On the Nasdaq, 1,440 issues fell and 1,386 advanced.

CURRENCIES: The euro slipped 0.1 percent to $1.1176 while the dollar was steady at 109.20 yen.

"The yen is the big story really".

While the data gave investors appetite for growth sectors such as information technology and biotechnology it soured them to rate-sensitive stocks such as banks, said Keith Lerner, chief market strategist, SunTrust Advisory services in Atlanta.

The dollar index.DXY, which measures the US currency against a basket of other major currencies, fell 0.14 percent.

The dollar was up 0.05 percent to 109.25 yen JPY=, after earlier falling to a sixteen-week low following data showing USA consumer prices rose less than expected in July. USA and British equivalents were also trading a touch above Wednesday's six-week lows.

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Buying interest may be somewhat subdued, however, as the ever-escalating war of words between President Donald Trump and North Korea continues to raise geopolitical concerns.

OIL: Benchmark U.S. crude lost 24 cents to $48.37 per barrel on the on the New York Mercantile Exchange while Brent crude, used to price global oils, declined 20 cents to $51.70 per barrel in London.

The 30-year bond was last up 4/32 in price to yield 2.7871 percent, from 2.794 percent late on Thursday. The Nasdaq is on track for a weekly loss of 1.5%, its worst since June.

While the German DAX Index has edged down by 0.1 percent, the French CAC 40 Index and the U.K.'s FTSE 100 Index are both down by 1 percent.

"What has changed this time is that the scary threats and war of words between the United States and North Korea have intensified to the point that markets can't ignore it", said Shane Oliver, head of investment strategy at AMP Capital in Sydney.

Geopolitical risks can boost demand for assets considered safe-haven investments, such as gold.

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North Korea talk drags stocks lower; gold, yen rise