HONG KONG: Asian and European markets sank while safe-haven assets rallied Tuesday as US-North Korea tensions flared up again after Pyongyang accused Donald Trump of declaring war on the country and said it may shoot down US bombers.
Foreign Minister Ri Yong-ho’s comments came at the United Nations in response to Trump’s warning on Twitter at the weekend that North Korea “won’t be around much longer” if it continues its threats.
Ri said the regime of Kim Jong-Un had “every right to take counter-measures, including the right to shoot down US strategic bombers even when they are not yet inside the airspace border of our country”.
The comments on the war declaration — described by the White House as “absurd” — are the latest in a war of words between the two sides following the North’s recent nuclear test and missile launches.
While most analysts do not expect a nuclear conflict, China and Russia have been among the countries to express alarm.
“This does represent a significant escalation in rhetoric and raises the risk of a tactical misstep,” Tapas Strickland, a Sydney-based economist at National Australia Bank, told Bloomberg News.
And the concerns are being felt on financial markets, with safe-haven investments rising. Gold was up more than one percent at $1,310, while the Japanese yen recovered recent losses against the dollar.
Tokyo’s Nikkei index ended 0.3 percent lower, while Seoul shed 0.3 percent and Hong Kong waqs down 0.2 percent in the afternoon.
Sydney, Singapore and Taipei were also in the red but Shanghai eked out minor gains.
In early European trade London fell 0.2 percent and Paris lost 0.1 percent while Frankfurt retreated 0.3 percent.
On currency markets the dollar struggled to recover from its New York losses and was sitting around 111.50 yen, well off the levels around 112.50 yen seen in Tokyo earlier Monday. Adding to the greenback’s weakness were conflicting comments from top Federal Reserve officials over the timing of the bank’s next interest rate rise.
The euro was also on the back foot after European Central Bank boss Mario Draghi aired concerns about its recent strength and hinted that policymakers could keep monetary stimulus for some time as the eurozone economy recovers.
The unit was at $1.1853, having topped $1.20 on Friday.
And while German Chancellor Angela Merkel won a fourth term as leader of Europe’s biggest economy, her declining share of the vote and the need to build a coalition government have left investors uneasy.
However, energy firms were mostly higher. Oil prices surged Monday after Turkish President Recep Tayyip Erdogan threatened to block key crude exports from Iraq’s Kurdish region, which is holding an independence referendum.
Brent jumped nearly four percent to its highest level since July 2015, while US benchmark West Texas Intermediate piled on three percent. However, the two contracts were mixed in Asian trade.
Greg McKenna, chief market strategist at AxiTrader, said prices were also supported by signs that a push by OPEC and other key producers aimed at cutting output was bearing fruit.
“Oil markets have a better tone at the moment as the notion that the OPEC/non-OPEC production deal is gaining traction and the market is rebalancing,” he added.