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North Korean Tensions Boost Defensive Assets

Date of publication: August 13, 2017 | Author: Tim Clayton

Global economic developments during the week have been relatively sparse, but there have been significant geo-political events which have had a notable impact on asset prices. The change in sentiment has been triggered by developments surrounding North Korea.

There were reports that the Pyongyang regime had developed the technology to miniaturise nuclear warheads which would enable them to be carried on long-range missiles.

President Trump issued a very aggressive statement, warning North Korea that ‘the US would respond with fire and fury, the like of which has never been seen’. Tensions continued to increase with North Korea suggesting that it could target the Pacific island of Guam which contains a large US military base. This tensions have similar effect as terrorism impacts currencies.

The comments increased concerns over potential military conflict in the region with North Korea claiming that it would be ready to launch missiles towards Guam within the next few days.

When Market fears intensify and uncertainty prevails, there is a clear deterioration in risk appetite. In practice, what this means is that investors pull funds out of assets which are seen as risky and push funds into defensive assets. In these circumstances, there is strong demand for the Swiss franc, gold and Japanese yen. In contrast, global stock markets are subjected to significant selling pressure.

The impact has been clearly seen in markets with USD/JPY retreating to below 109.50 from near 111.00 while gold prices have moved to highs around $1,285 per ounce from $1,255. The Swiss franc has also gained ground with EUR/CHF at 1.1300 from 1.1500.

Tensions will remain high in the short term and there will be a fresh surge in demand for defensive assets if there is any military action in the region. If there is no intensification of the dispute, market interest will gradually fade with scope for at least a partial recovery in risk appetite.

 timTim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including Investing.com and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics. 
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This post first appeared on Best International Money Transfer - Comparison & R, please read the originial post: here

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