North Korea Has Markets Nervous But Not Panicked

Dow Jones Industrial Average

Dow Jones Industrial Average

A small rise in a measure of United States consumer prices pointed to benign inflation that could make the Federal Reserve cautious about raising interest rates again this year, which would be favourable to equity investors.

Trump issued a new warning to Pyongyang on Friday, saying in a tweet: "Military solutions are now fully in place, locked and loaded, should North Korea act unwisely".

Earnings results also weighed on stocks. The index has fallen to its lowest intraday level in nearly a month.

THE QUOTE: "Inflation - or lack of -- has been an ongoing problem for the central bank and some policy makers have voiced concerns about this in recent months as they consider whether to raise interest rates again this year", said Craig Erlam, senior market analyst at OANDA.

"While not necessary unexpected - as the United States had to respond to threats made by North Korea that they will fire rockets due to land just off the coast of Guam soon - new comments by Trump propelled stocks lower".

S&P 500 e-mini futures were down 0.2 percent, hinting at weakness on Wall Street later in the day.

"There's not a great incentive to buy big", said Lerner of SunTrust Advisory. The S&P 500 is up 9 percent, while the Dow is up 10.6 percent.

On Thursday the greenback had shed 0.8 percent versus the yen, with the Japanese currency rallying broadly against most major currencies. The UK trading session took USD/CHF lower to hit a day low of 0.9630 towards the closing bell, but closed up slightly on the day by 0.03%.

Tokyo's Nikkei 225 share index closed down 1.3 per cent at its lowest since 1 June as the strong yen hit exporters, while South Korea's KOSPI index fell 1.1 per cent to seven-week lows. Hong Kong's Hang Seng added 0.6 percent.

Japan is the world's biggest creditor country and there is an assumption that investors there will repatriate funds in a crisis.

MARKETS OVERSEAS: In Europe, Germany's DAX fell 1.1 percent, while France's CAC 40 slid 1.4 percent.

U.S. productivity data had little impact with some caution ahead of Friday's inflation data.

"The market is trying to interpret the CPI data as somewhat positive because it is anticipating that the Fed will be on hold not only in September but also possibly in December", said Robert Pavlik, chief market strategist at Boston Private Wealth. It was down 0.1 percent at 109.07 yen JPY= , after retreating 0.8 percent on Thursday.

The utilities index .SPLRCU , often seen as a bond proxy because of its companies' slow reliable growth and high dividends, was the only S&P sector that ended the day up, showing a 0.25 percent gain.

Investors also drew some encouragement from new government data showing US inflation at the consumer level inched higher last month.

Benchmark 10-year notes last rose 7/32 in price to yield 2.1888 percent, from 2.211 percent late on Thursday.

Bond prices were little changed.

Gold added $16.70, or 1.3 percent, to settle at $1,279.30 an ounce. Aside from the geopolitical drama, investors are digesting a rise in the U.K.'s trade deficit in June, as well as disappointing housing data for the region in July.

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