Financial market research and analysis

Asian shares have fallen significantly overnight after another verbal intervention from US President Trump on the situation in North Korea. Trump indicated that his prior warning of fire and furry wasn’t “tough enough” for North Korea. Trump has upped the ante so the market is having to price in possible military intervention.

Shares on Wall Street suffered after the US President’s comments with the S&P 500 sinking 1.5%. The VIX index struck its most extreme levels since Donald Trump won the US election. In another sign of investors shunning riskier areas of the market, US junk bonds have suffered the worst two-day decline this year. It was an ill-timed day to report wider than-expected losses and shares of Snap crashed to a new record low.

Love or loathe him, Trump isn’t one to back down from a confrontation so its perhaps not a surprise that things have escalated. North Korea responding with a threat to US territory after Trump warned them not to threaten the US was never going to go down well. We assume markets will move on if it remains purely a war of words but the sell-off looks durable. With earnings season almost over, worry over North Korea may have ignited a well-overdue period of greater market volatility.

European shares are expected to continue the risk-off mood with a lower open on Friday, including a drop below 12,000 in the DAX. The FTSE 100 is expected to open half a percent lower as investors digest earnings from insurer Old Mutual. Gold-miners are likely to be amongst the handful of risers in a risk off environment that sent gold prices to a nine-week high.

The flight to havens in currency markets saw the yen in demand, despite its geographical proximity to North Korea. USDJPY dropped below 109 to a two-month low. South Korea’s won understandably took the brunt of forex trader fears with the currency sliding to a one-month low. The euro has managed to hold above the 1.17 level against the US dollar despite attempts to break lower over the past three days. German and French inflation data is scheduled to be released Friday morning.

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