It’s nearly impossible these days to turn on the news without hearing something about growing tensions between North Korea vs. USA.
But the impact of the back-and-forth threats is felt in more than just those two countries—it is having big impacts around the world and in the global stock markets.
Stock Market Impacts
With growing fear that North Korea will test a hydrogen bomb, equity benchmarks posted their biggest single-day drop in 2017 last Friday. That was the same day North Korea said it might test a hydrogen bomb in the Pacific Ocean after President Trump threatened to destroy the country and made other disparaging remarks about leader Kim Jong Un. Asian stocks took a hit as the news continued to build. The NSE Nifty closed below its psychological level of 10,000 on Friday, a drop of 1.56% from the previous day. The BSE Sensex was also down, and experts predict investor sentiment will remain weak as tensions remain.
“We believe that the volatility will remain high in the coming week due to several important data and events. On local front, the scheduled derivatives expiry on Thursday will keep the traders busy throughout the week,” said Jayant Manglik of Religare Securities.
Experts across the Asian markets expect to see a large number of investors consolidating in the coming F&O expiry week. There are also concerns relating to FII trend and the building monsoon season that are weighing on investors.
However, at the same time, US stocks didn’t change much. The biggest dips of the week came from fears that Apple’s new smartphone won’t be as successful as past models but weren’t related to threats from North Korea. The looming Fed rate increase is also impacting American stocks. That’s not to say that the US market is untouched from the events and that actions from the US and North Korea couldn’t impact the market.
“Big noise out of North Korea will keep today’s trading defensive as the biggest threat to the markets make the headlines,” said Peter Cardillo, chief market economist at First Standard Financial. “While we don’t expect a serious selloff, the geopolitical rhetoric could heat up.”
Good News for Gold
However, troubled stock prices have been good news for gold prices as investors move to something they view as more stable. As the US dollar drops, gold has risen above its previous low, with many investors moving their money to the more stable gold market.
This is a common trend during uncertain geopolitical times when stocks are viewed as much riskier than the metals market. Spot gold was up 0.36% per ounce on Friday afternoon, just after hitting a four-week low on Thursday. In general, prices are right around the 50-day moving average. Gold’s performance is also largely related to the high possibility of the Fed raising interest rates before the end of the year, forcing investors to consider if they want the security of gold or the interest that comes from other accounts.
Other global currencies are also profiting from the fear and uncertainty. The Japanese yen and Swiss franc gained with news of the potential nuclear test.
There doesn’t seem to be an end in sight for tensions between the US and North Korea, so investors around the world should pay attention and buckle up for what could become a bumpy economic ride.