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Dow plummets 205pts as Trump inflames Korea tension

12 August 2017

North Korea had responded to Trump's previous promise to unleash "fire and fury" with a threat to land missiles near the US Pacific territory of Guam. And when the S&P 500 breaks a streak of 50+ trading days without a 1%+ up move, the index actually averages a decline over the next month and a gain of just 0.86% over the next three months.

"We're getting close towards very important support on the dollar/yen", said Steven Dooley, currency strategist for Western Union Business Solutions in Melbourne.

"The cooler CPI figures this morning follow similarly lower than expected wholesale price data yesterday and together, have highlighted the extremely benign inflation backdrop that has reduced expectations for Fed lending rate hikes in the months ahead", said Omer Esiner, an analyst at Commonwealth Foreign Exchange. "Although it is considered highly unlikely that this tension will escalate into a nuclear war, the market still needs to see how President Trump will eventually deal with his advocating "fire and fury" against North Korea's threat", said Margaret Yang Yan, market analyst at CMC Markets Singapore.

But the yen added to an already-strong weekly rally of close to 1.5 percent, hitting its highest in nearly four months versus the dollar at 108.73 yen.

Gold prices have maintained a firm tone with a push to 2-month highs on Thursday as underlying demand for defensive assets remained an important feature.

The Dow Jones Industrial Average rose 44.33 points, or 0.2 percent, to 21,888.34, the S&P 500 gained 6.01 points, or 0.25 percent, to 2,444.22 and the Nasdaq Composite added 32.10 points, or 0.52 percent, to 6,248.97.

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Shane Oliver, head of investment strategy at AMP Capital in Sydney, said: "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".

Traders took heart in a measure of US consumer prices that increased only slightly in July, pointing to benign inflation that could make the Federal Reserve cautious about raising interest rates again this year.

The pan-European FTSEurofirst 300 index lost 1.06 percent and MSCI's gauge of stocks across the globe shed 0.17 percent.

There were falls of almost 2% on South Korea's Kospi and Hong Kong's Hang Seng, with markets in mainland China and Australia also down - taking their cues from sharp losses on Wall Street earlier.

The yen tends to benefit during times of geopolitical or financial stress as Japan is the world's biggest creditor nation and there is an assumption that Japanese investors will repatriate funds should a crisis take place.

Spot gold XAU= added 0.7 percent to $1,286.00 an ounce. The data suggested little sign of inflationary pressure within the economy.

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In currencies, the yen rose 0.8 percent versus the greenback at 109.2 per dollar JPY= , the strongest level for the Japanese currency since mid June.

In bond markets, the yield on US Treasuries fell, also pressured by the lowered expectations for a Fed move.

In a note sent to clients late on Thursday, the US bank predicted the single currency would rise to $1.25 in the first quarter of next year and reach parity with sterling for the first time.

US crude CLc1 was unchanged at $48.59 per barrel and Brent LCOc1 was last at $51.84, down 1.63 percent on the day.

"The war of words between the leaders of the USA and North Korea continues to dominate investor sentiment", said Forex.com technical analyst Fawad Razaqzada.

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Dow plummets 205pts as Trump inflames Korea tension