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Markets extend losses as Korea tensions escalate

14 August 2017

It is "a bullish sign that the equity markets are rebounding somewhat on a Friday, in spite of the fact that investors will need to wait for two days to react to any geopolitical news that comes out over the weekend", said Robert Phipps, a director at Per Stirling Capital Management in Austin, Texas.

"But looking ahead unless we start to see a conflict break out or a major stock market correction, (gold) is capped at 1,295 (although) the upside at moment is the favoured direction". "This is mainly due to the fact that in the event of a crisis involving the U.S. directly, investors are more likely to seek refuge in an asset like gold which bears no country risk and also benefits when the dollar depreciates", Gambarini writes.

The Vix, a measure of how much volatility investors expect in stocks, jumped to its highest level since May after North Korea revealed a plan to launch ballistic missiles toward a major USA military hub in the Pacific.

The yen has also registered its biggest weekly gain since May against the dollar amid speculation that investors of Japan, as the biggest creditor nation, would repatriate their funds should a war break out.

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On the currency markets, the pound was down to a three-week low against the United States dollar but mainly due to earlier disappointing output and trade data. The stock fell $1.01 to $22.02. South Korea's benchmark equities gauge fell for a second day, dragged by Samsung Electronics Co. and SK Hynix Inc., which both lost more than 3 percent.

Overnight, MSCI's broadest index of Asia-Pacific shares outside Japan had skidded 1.55 per cent, its biggest one-day loss since mid-December, to leave it down 2.5 per cent for the week. The move added to escalating U.S.

The Korean won continued to fall versus the dollar, down 0.13 percent to 1,143.5 on Friday for a 1.6 percent decline on the week.

However, bank stocks, including Goldman Sachs, Bank of America and Morgan Stanley, were down about 1 percent on the dimming prospects of another rate hike this year. However, if the US and South Korea will be the instigators, China is going to interfere.

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"It reinforces market concerns that inflation is perhaps just not picking up in the way the Fed had been expecting", said Osborne. The yield on the 10-year Treasury note rose to 2.27% from 2.26%. Wholesale price inflation eased to an eight-month low of 2.2% in July from 2.5% in June.

The Swiss franc bought $1.0373 on Wednesday, representing a 1% rise from $1.0266 late Tuesday in NY.

Spot gold rose 0.6 per cent to $1,267.79 per ounce at 1004 GMT, while USA gold futures for December delivery rose 0.9 per cent to $1,273.50 per ounce.

Silver futures jumped 0.474 dollar or 2.89 percent to close at USD 16.86 per troy ounce at the COMEX. USA crude was down 0.9 percent at $48.16 per barrel, on track for a weekly loss of 2.9 percent.

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Markets extend losses as Korea tensions escalate