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Risk Aversion Continues in Europe as US, North Korea Go Head to Head

Risk Aversion Continues in Europe as US, North Korea Go Head to Head

2017-08-09 09:55:00
Martin Essex, MSTA, Analyst
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Talking Points

- Safe havens such as the Japanese Yen and gold are in demand on the bellicose rhetoric from the US and North Korea.

- Conversely, ‘risk-on’ currencies like the Australian Dollar and the Korean Won are weakening.

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Investors were moving their money from riskier assets such as stocks into perceived safe havens such as US and German government bonds Wednesday as President Donald Trump warned North Korea of “fire and fury” if it threatened the US and North Korea said it is examining a missile strike on the US Pacific territory of Guam.

In the currency markets similarly, the risk-off tone benefited the Japanese Yen and Swiss Franc while weakening the Australian Dollar and Korean Won. Gold, the traditional bolthole for risk-averse investors, benefited too.

All three major European stock markets were lower by mid-morning in London, with the FTSE 100 down 0.8%, the DAX 1.2% lower and the CAC 40 off by 1.5%. The yields on the 10-year US Treasury note and the 10-year German Bund were both down by around four basis points. In the foreign exchanges, the Japanese Yen was a beneficiary despite its geographical proximity to the danger zone.

Chart: USD/JPY 5-Minute Timeframe (August 9, 2017)

Risk Aversion Continues in Europe as US, North Korea Go Head to Head

Chart by IG

It was a similar picture for the Swiss Franc and gold, while the Korean Won – South Korea’s currency – and the Australian Dollar both weakened.

Chart: AUD/ USD 5-Minute Timeframe (August 9, 2017)

Risk Aversion Continues in Europe as US, North Korea Go Head to Head

Chart by IG

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

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