Sydney - European stocks slumped, following drops in Asia and the US as volatility soared and investors sought havens amid what hedge-fund manager Ray Dalio termed a game of chicken between US and North Korean leaders.
The Stoxx Europe 600 Index headed for a five-month low, with every market sector in the red, after equity benchmarks from Hong Kong to Sydney extended losses. The CBOE Volatility Index climbed to the highest level since Donald Trump’s election as US president in November.
Gold hit a two-month high, the yen pushed through 109 per dollar and most European government bonds strengthened. Oil was poised for a second week of decline.
Escalating tension between the US and North Korea has dominated sentiment in financial markets this week as the spat threatens to boil over into military confrontation. Trump stepped up his campaign of pressure, warning the regime not to follow through with a missile test near Guam and promising a massive response to any strike against America or its allies.
Some big investors have been warning now would be a good time to reduce levels of risk in portfolios. Dalio, who leads the world’s largest hedge fund at Bridgewater Associates, recommends investors consider placing 5% to 10% of their assets in gold as a hedge against current political and economic risks.
Here are some important upcoming events:
Friday’s CPI data in the US will get close attention following an unexpected drop in wholesale prices in July. New York Fed President William Dudley cautioned that it will "take some time" for inflation to reach the central bank’s 2% target, the latest official warning that price pressures remain muted.
The Federal Reserve Bank Dallas President Fred Kaplan speaks this afternoon. Russia’s GDP probably added 1.7% last quarter, the biggest annual gain in more than three years and a third straight quarter of year-on-year growth.
Moody’s may publish a review of South Africa’s credit rating, two months after reducing its foreign- and local-currency assessments to one level above junk.
Here are the main moves in markets:
Stocks
The Stoxx Europe 600 Index fell 1.1% 10:04 in London, the lowest in more than five months. The gauge is down 2.8% this week, the most since November. The UK’s FTSE 100 Index declined 1.1%, the lowest in more than three months.
Germany’s DAX Index decreased 0.6% to the lowest in more than 20 weeks. Futures on the S&P 500 Index fell 0.3%. The CBOE Volatility Index surged 6 percent after yesterday’s 44% rise.
Currencies
The Bloomberg Dollar Spot Index climbed less than 0.05% to 1 160.67. The euro dipped 0.1% to $1.176. The British pound decreased less than 0.05% to $1.2972.
Bonds
The yield on 10-year Treasuries fell one basis point to 2.19%, the lowest in more than six weeks. Germany’s 10-year yield decreased three basis points to 0.38%, the lowest in more than six weeks.
Commodities
West Texas Intermediate crude dipped 1% to $48.12 a barrel, heading for a 0.8% drop this week. Gold advanced 0.2% to $1 288.72 an ounce, the strongest in more than two months.
Asia
The MSCI Asia Pacific Index fell 0.8% and was headed for a 1.2% slide this week. Australia’s S&P/ASX 200 Index fell 1.2% at the close in Sydney. The Hang Seng Index in Hong Kong tumbled 2% and China’s Shanghai Composite Index was down 1.6%.
South Korea’s Kospi index lost 1.7% and volatility on the Kospi 200 surged as much as 27%.
The Japanese yen rose 0.2% to 108.96 per dollar, the strongest in more than 15 weeks. Japanese markets are closed for the Mountain Day public holiday.
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