Yen, Treasuries Advance as Korea Threats Linger

EghtesadOnline: Asian equities were mixed, the yen and gold extended gains, and Treasuries rallied as traders digested reports of North Korean plans for a ballistic missile launch on the heels of Sunday’s nuclear test.

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05 September 2017

Japanese stocks fell and equity indexes declined in Sydney and Seoul, while they fluctuated elsewhere as the United Nations Security Council met to discuss the threat from Pyongyang. S&P 500 Index futures inched lower before American markets reopen after the Labor Day holiday. Yields on Treasuries declined, according to Bloomberg.

“Markets are a little bit bifurcated,” Mizuho Bank Ltd. head of economics and strategy Vishnu Varathan told Bloomberg Television. “They do realize that the tail risks are rather large, so in fact there is an adverse outcome, they are not well prepared for it, but they are also betting against that, which is exactly why they are buying the dips.”

There is a high chance North Korea will fire an ICBM missile before the Sept. 9 foundation day after the Pyongyang regime started moving such a weapon, Asia Business Daily reported Tuesday, citing unidentified intelligence officials. North Korea was “begging for war” by testing a nuclear weapon over the weekend, the U.S. ambassador to the UN said. Nikki Haley demanded the strongest sanctions possible to bring the Kim Jong Un regime to heel.

Elsewhere, bitcoin tumbled the most since July after China’s central bank said initial coin offerings are illegal and asked all related fundraising activity to be halted immediately.

Among key events coming this week:

The Reserve Bank of Australia holds it monetary policy meeting today. Expectations are for the central bank to hold rates. Governor Philip Lowe speaks this evening.

Caixin’s China services PMI rose to 52.4 in August from 51.9 in July.

Australia’s net exports added 0.3 percent to GDP in the second quarter, more than economists expected. GDP is due Wednesday. Meanwhile, current-account deficit widened more than forecast.

Among other economic numbers out of China this week, trade figures are anticipated to show another month of solid export growth, while FX reserves probably continued to rise on stricter capital controls, robust growth and a stronger yuan, according to Bloomberg Intelligence.

Federal Reserve Board member Lael Brainard speaks on the economic outlook and monetary policy on Tuesday, which may help set the tone for the Fed’s Sept. 20 policy decision. Among other Fed speakers this week, New York Fed President Bill Dudley and Dallas Fed President Robert Kaplan.

The European Central Bank meets on Thursday. President Mario Draghi will express concern over the euro’s strength when the ECB meets this week, but won’t say much about his asset-purchase program’s future, according to a survey.

And here are the main moves in markets:

Stocks

Japan’s Topix index fell 0.6 percent as of 13:10 p.m. Tokyo time, while South Korea’s Kospi index lost 0.2 percent. Australia’s S&P/ASX 200 Index slipped about 0.1 percent.

Hong Kong’s Hang Seng Index rose 0.2 percent, with indexes also higher in China and Singapore.

Futures on the S&P 500 Index fell 0.3 percent.

The MSCI Asia Pacific Index fluctuated. It slid 0.6 percent on Monday, the steepest drop since Aug. 11.

Currencies

The Japanese yen rose 0.4 percent to 109.27 per dollar after jumping 0.5 percent on Monday.

The Australian dollar advanced 0.2 percent to 79.63 per dollar. It jumped as high as 79.85 after the net exports contribution to GDP.

The Bloomberg Dollar Spot Index fell about 0.1 percent.

The euro was up 0.1 percent to $1.1908 after advancing 0.3 percent Monday.

The Swiss franc advanced 0.3 percent to 0.9554 per dollar after climbing 0.7 percent.

The offshore yuan tumbled the most since June on a closing basis after the People’s Bank of China strengthened its daily reference by 0.45 percent to 6.5370 per dollar, weaker than expected.

Bonds

The U.S. 10-year Treasury yield fell more than three basis points to 2.13 percent.

Yields on Australian 10-year bonds climbed about five basis points to 2.67 percent.

Commodities

Gold rose 0.2 percent to $1,336.22 an ounce, the highest since September 2016.

West Texas Intermediate crude climbed 0.2 percent to $47.40 a barrel.

Gasoline declined 4.2 percent to $1.6745 a gallon. It gave up some of last month’s gains as U.S. Gulf Coast refineries plan to resume operations following Hurricane Harvey-triggered shutdowns.

Copper in London rose to a three-year high and was trading 0.3 percent higher $6,940 a metric ton.