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Sydney - Financial markets showed signs of stabilising after a fresh trigger from North Korea had sent money into haven assets, with focus returning to comments from central bank policy makers.
Stocks in Asia fell, though declines were modest, as the yen and gold consolidated gains. North Korea had injected a note of caution to markets on Monday after its foreign minister declared that the nation can shoot down US warplanes.
Oil climbed to a five-month high after Turkey threatened to shut down Kurdish crude shipments through its territory.
Markets have been oscillating between a risk-on, risk-off stance since early August amid simmering tensions on the Korean Peninsula. Equities have pulled away from recent record highs as the US and North Korea continue to trade threats, and European political risks emerged after the weekend German election that returned Chancellor Angela Merkel with eroded support.
North Korean Foreign Minister Ri Yong Ho described President Donald Trump’s recent comments as tantamount to a declaration of war. The White House denied it has declared war on Pyongyang, while Trump’s national security adviser said the US has four or five different scenarios for how the crisis will be resolved, and "some are uglier than others."
China’s ambassador to the UN told Reuters the situation is "getting too dangerous."
Geopolitics will share centre stage with a speech by Federal Reserve Chair Janet Yellen on Tuesday, which will be parsed as policy makers continue to disagree on whether to raise US interest rates again this year.
Investors see a roughly 60% chance that rates will be increased again in December following moves in March and June.
What to watch out for this week:
Later in the week, Bank of England Governor Mark Carney speaks, as does soon-to-depart Fed Vice Chairman Stanley Fischer. European Union chief Brexit negotiator Michel Barnier and U.K. counterpart David Davis begin their next round of negotiations.
Household spending last month in the US probably posted the smallest gain since February as motor-vehicle sales shifted into a lower gear, economists forecast government figures to show.
The euro-area inflation rate may have accelerated a touch to 1.6% in September from 1.5% but the core will probably remain at 1.2% when data is out on Friday.
Here are the main moves in markets:
Stocks
Japan’s Topix index swung between gains and losses as of 2:35pm in Tokyo. South Korea’s Kospi index fell 0.3% and Australia’s S&P/ASX 200 Index lost 0.2%.
Hong Kong’s Hang Seng Index was little changed after slumping 1.4% on Monday as Chinese property developers tumbled on fresh mainland home curbs.
Read how one of the world’s most extreme stock rallies gets a reality check. The Philippine Stock Exchange Index tumbled 1.4%, the most in Asia, on profit-taking after the benchmark reached a record high on September 18.
Futures on the S&P 500 Index fell 0.1%. The underlying gauge lost 0.2%, while the Nasdaq Composite Index declined 0.9% following a selloff in technology stocks.
Currencies
The Bloomberg Dollar Spot Index was flat after climbing 0.4% to the highest in more than three weeks. The yen added 0.1% to 111.57. It gained 0.2% on Monday. The won fell 0.5% to 1 136.95 per dollar.
The euro was at $1.1843 after falling 0.9%. The Australian dollar bought 79.37 US cents. The New Zealand dollar dropped 0.3%, adding to a 0.9% slide on Monday.
Bonds
The yield on 10-year Treasuries was steady at 2.22%, maintaining a three basis point drop on Monday. Australia’s 10-year bonds yield fell three basis points to 2.77%.
Commodities
Gold was steady at $1 311.65 an ounce, after jumping 1% on Monday. West Texas Intermediate crude edged higher to $52.29 a barrel after rising 3.1% on Monday to the highest since April.
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