Global shares fall after North Korea spooks investors

Stocks and the dollar fell while the Japanese yen, gold and sovereign bonds rose after North Korea’s most powerful nuclear test to date dampened investor appetite for risk.

Global shares fall after North Korea spooks investors

The test, and reports from Seoul that Pyongyang was preparing for another missile launch, sparked warnings from Washington and drove South Korea’s stock market lower. Japan’s Nikkei lost almost 1%.

With Wall Street closed for the Labor Day holiday at the start of a week likely to become increasingly dominated by a number of central bank meetings, the fall in European stocks was less marked. The pan-European stocks index lost 0.4%, led by falls for banks.

“The markets’ reaction seems similar to when missile launches have taken place in the past. Investors sell stock, rush to safe havens, assess the situation, and then buy the dips as tension eases,” said Hussein Sayed, chief market strategist at brokers FXTM.

The dollar was down 0.3% against the basket of currencies used to measure its broader strength.

Investors tend to buy the yen in time of political or market tension on expectations Japanese investors will over time repatriate their money.

The Swiss franc also viewed as a safe place to park money, rose.

Yields on German government bonds, regarded as among the world’s lowest-risk assets, fell slightly.

Safe-haven gold was up 0.8% at $1,336 an ounce, having risen to $1,339.47, its highest in nearly a year.

Tom Kendall, head of precious metals strategy at ICBC Standard Bank, saw potential for gold to rally further.

ECB policymakers meet on Thursday, with expectations of any major shift towards reining in its bond-buying stimulus programme fading in recent weeks.

“The trend in recent months has been for knee-jerk risk-averse reactions to geopolitical events to be followed by a gradual recovery in risk sentiment as global monetary accommodation has its usual pacifying effect in markets,” said Societe Generale strategist Kit Juckes.

“A repeat of that pattern seems eminently possible this week,” he said.

Reuters

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