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North Korea Nuclear Tests Rattles Markets Again, Havens in Demand

North Korea Nuclear Tests Rattles Markets Again, Havens in Demand

David Cottle, Analyst


Talking Points:

  • Reports of a sixth, more powerful nuclear test by North Korea has Asian markets on edge as a new week starts
  • The US has threatened massive retaliation if it or its allies is threatened
  • The Japanese Yen and gold are particular beneficiaries

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The Japanese Yen, gold and sovereign debt all rose as trade got under way in Asia Monday as North Korea’s weekend nuclear test found perceived haven assets in demand once again.

The rogue state successfully undertook its sixth and most powerful nuclear test on Sunday and now claims possession of an advanced fusion weapon, or hydrogen bomb. The US has threatened a “massive” military response if it or its allies were to be threatened with such a thing and US Defense Secretary Jim Matthis has said that President Trump has asked for a briefing on all military options.

In the markets, a now-traditional reaction to North Korean belligerence was seen. USD/JPY slipped into the low 109s before recovering somewhat, with the Swiss Franc also gaining. Gold prices rose to ten-month peaks and Treasury bonds were up too. US equity futures slipped but stock markets will in any case be closed on Monday for the Labor Day break. Still, it looks as though the going will be tough for Asian stocks as the day proceeds.

All that said, it should probably be pointed out that this reaction remains a “market” phenomenon, rather than one which necessarily suggests investors fear catastrophic escalation on the Korean peninsula. With Japan often literally in North Korea’s firing line, it must be at least debatable how much value Japanese assets would really offer in the event of a shooting war there. Moreover North Korea is chafing under the burden of increased international sanctions and has in the past used nuclear tests as a bargaining chip in a bid reduce such penalties.

Oil prices were mixed with US crude up a shade and international benchmark Brent lower.

Wall Street managed a higher close Friday despite an underwhelming set of official labor statistics. The US added 156,000 jobs last month. This was way below the 180,000 markets were looking for. Still, it wasn’t all bad news. The Institute for Supply Management said that factory activity was at its highest since May 2011 last month. Futures markets put the chance of an interest rate rise in December at about 40%.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.