Friday 08.25 BST
What you need to know
- European stocks edge lower after mixed moves in Asia
- Yen and gold pull back from initial gains prompted by North Korea missile launch
- Crude oil pulls back from Thursday highs
Overview
Market reaction to North Korea’s latest missile test was muted on Friday morning, with traders shrugging off news that a rocket launched by Pyongyang had once again flown over Japan but remaining cautious ahead of any potential reaction from the US.
Hot topic
Japan’s yen was the biggest mover in major currencies on Friday morning, losing 0.5 per cent against the dollar to trade at ¥110.72, having briefly strengthened as much as 0.6 per cent to ¥109.56 immediately following the launch.
The broader market response, which followed word that North Korea had launched what appeared to be an intermediate-range ballistic missile that flew over Japan’s northern island of Hokkaido before landing in the Pacific Ocean, was relatively minor compared with those that followed earlier rounds of weapons testing by North Korea.
US officials had expected North Korea to retaliate after the UN passed a new package of sanctions targeting the reclusive nation, which, combined with an earlier round in August, mean that 90 per cent of North Korean exports are now under sanctions.
Derek Halpenny at MUFG said the fallout had been “very muted”. “The limited follow through in risk-off trading perhaps reflects the fact that sanctions have already been agreed and hence there is a low probability of further reaction to this latest test by North Korea.”
“This still is a sizeable geopolitical risk that will not go away anytime soon,” he added, pointing to a potential escalation of rhetoric from the US later today.
Equities
Stocks in Europe opened slightly lower, with the Euro Stoxx 600 losing 0.2 per cent to 380.89. The FTSE 100 was down 0.4 per cent to 7,266.01.
In Asia, stock markets were mixed after a weaker lead-in from Wall Street. Japanese shares recovered from an initial dip to trade higher on Friday morning, with Tokyo’s Topix index up 0.4 per cent after opening 0.2 per cent lower.
South Korea’s Kospi index added 0.4 per cent, while in Hong Kong the Hang Seng was flat, having fallen in Asian trading. Australia’s S&P/ASX 200 was down 0.8 per cent.
Forex and fixed income
Currency market moves were relatively muted despite the latest ratcheting-up of geopolitical tensions. The Australian dollar moved sharply in Asian trading but was down just 0.1 per cent at $0.7998 at the start of the European session.
The dollar index measuring the greenback against a basket of peers was 0.1 per cent lower at 92.058. Yields, which move inversely to price, on the 10-year US Treasury were likewise flat at 2.186 per cent.
Sterling added 0.2 per cent against the dollar to $1.3425. On Thursday, the Bank of England had issued its strongest guidance in a decade that it was on the verge of raising interest rates. The 10-year gilt yield was flat at 1.24 per cent in early trading on Friday.
“After repeated warnings that the market was under-pricing the risk of tighter policy at the previous MPC meetings, the BoE upped its rhetoric this time with a more forceful guidance,” wrote analysts at RBC Capital Markets.
“However, the language in . . . [Thursday’s] minutes is sufficiently caveated and still suggests that everything is conditional on data, and Brexit to a certain extent”.
Commodities
Crude oil was pulling back from Thursday’s highs, which were reached on mounting optimism about demand. Brent crude, the global benchmark, was off 0.5 per cent at $55.22 a barrel. West Texas Intermediate, the US marker, fell 0.6 per cent to $49.59.
Gold was down 0.2 per cent at $1,326.4 per ounce, pulling back from initial gains following news of the latest missile launch by North Korea.
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