Asia Stocks Reverse Gains as Korea Angst Lingers: Markets Wrap

Adam Haigh, Bloomberg.

Asian stocks reversed earlier gains as investors continued to take risks off the table even as American officials tried to ease concerns amid an escalation in tensions between the U.S. and North Korea.

The MSCI Asia Pacific Index fell with U.S. equity-index futures as shares from Tokyo to Seoul and Hong Kong declined. U.S. Secretary of State Rex Tillerson signaled military confrontation was not imminent, among officials in the Trump administration who sought to fine-tune the message on how it will address North Korean threats that sparked a flight to safe-haven assets. While the comments gave some relief to U.S. equities, Hong Kong stocks headed for the first back-to-back loss in a month.

“The North Korea situation is still unstable and investors are controlling risk and taking profit after recent gains,” said Sam Chi Yung, a Hong Kong-based senior strategist at South China Financial Holdings Ltd.

Saber rattling lifted geopolitical tensions between North Korea and the U.S. to unprecedented levels this week, dragging down global equities from a record high and spurring a flight to haven assets like the yen and gold. Some notable money managers are continuing to express concerns, advising to reduce risk in portfolios. Pimco told investors to pare U.S. equities and junk bonds, but keep exposure to real assets, such as inflation-linked debt, commodities and gold. T. Rowe Price cut its stock allocation to the lowest level since 2000.

South Korea’s military on Thursday warned North Korea that it would face a strong response if it carried through with a threat to launch a missile toward the U.S. territory of Guam.

Investors are also awaiting for more clues on the implications for monetary policy and U.S. economic growth with a speech by Fed Bank of New York President William Dudley due ahead of Friday’s inflation data. Chicago Fed President Charles Evans said it would be “reasonable” to announce the beginning of a reduction of the central bank’s balance sheet next month, while cautioning that disappointing inflation data may delay interest-rate increases as technological disruption dampens price pressures.

Here are some important upcoming events:

The Philippine central bank will probably hold its benchmark at 3 percent on Thursday at the first meeting at which Governor Nestor Espenilla will preside. U.K. factory output for June is and France industrial production are due Thursday. Fed’s Dudley delivers opening remarks at the Economic Press Briefing on Wage Inequality in the Region in New York City, followed by a question and answer session.

Here are the main moves in markets: Stocks

Japan’s Topix index fell 0.1 percent, while South Korea’s Kospi index slid 0.8 percent, adding to a 1.1 percent drop on Wednesday. The Hang Seng Index in Hong Kong tumbled 1.6 percent and Taiwan’s Taiex index lost 1.4 percent, the two biggest declines in Asia. Australia’s S&P/ASX 200 Index bucked the trend for a second day, up 0.2 percent. Futures on the S&P 500 Index fell 0.2 percent as of midday in Tokyo. The underlying gauge closed less than 0.1 percent lower, all but erasing losses of as much as 0.5 percent. Treasuries pared gains and U.S. equities recouped declines in the final hour of trading.

Currencies

The won dropped 0.5 percent to 1,141.50, while the yen was flat at 110.07. The euro fell to $1.1745 and the Bloomberg Dollar Spot Index was up less than 0.1 percent. The kiwi dollar lost 0.5 percent to 73.01 U.S. cents. It erased gains of as much as 0.5 percent after Governor Graeme Wheeler said the Reserve Bank of New Zealand would like to see a weaker exchange rate and FX intervention is always open to the central bank.

Bonds

The yield on 10-year Treasuries held at 2.25 percent. Australia’s 10-year bond yield was up one basis point to 2.65 percent. Germany’s 10-year bund yield declined four basis points to 0.43 percent on Wednesday.

Commodities

Gold was little changed at $1,276.83 an ounce after falling as much as 0.2 percent. It surged 1.3 percent on Wednesday. West Texas Intermediate crude was little changed at $49.56 a barrel after climbing 0.8 percent the previous session. U.S. production eased and crude inventories extended declines, trimming a glut.