HONG KONG: Asian and European stocks tumbled along with the South Korean won Monday while the safe-haven yen rallied on news that North Korea had tested what it claimed was a hydrogen bomb, ramping up international tensions.
Less than a week after it rattled global markets by firing a rocket over Japan, Pyongyang on Sunday conducted its sixth nuclear test — sparking further condemnation and a warning from US Defense Secretary Jim Mattis of a “massive military response” if the US or its allies were attacked.
Seoul said later Monday there were signs the North is preparing another missile launch, adding it could involve an intercontinental ballistic missile similar to the one fired over Japan.
On Sunday the White House said President Donald Trump stands ready to use the country’s “full range of diplomatic, conventional, and nuclear capabilities” if North Korea continues to threaten it or its allies.
Trump earlier denounced the test, tweeting that the time for “appeasement” was over and threatening drastic
economic sanctions, including “stopping all trade with any country doing business with North Korea”.
“It seems (North Korean leader) Kim Jong-un shows no signs of conciliation,” said Greg McKenna, chief market strategist at AxiTrader. North Korea “seems hell-bent on either goading the United States, and its president, into a response or what it thinks will be an embarrassing backdown.”
The latest flare-up sent investors fleeing for safe assets, with the yen climbing to 109.50 to the dollar and gold up 0.9 percent, pushing towards $1,340 and levels not seen since November. The won sank 0.9 percent against the dollar.
Dollar holds up
On equity markets Seoul shed 1.2 percent and Japan’s Nikkei ended 0.9 percent down as the stronger yen hurt exporters. Hong Kong slipped 0.8 percent and Sydney closed down 0.4 percent, while Singapore gave up one percent.
However, Shanghai closed up 0.4 percent.
In early European trade London fell 0.5 percent, Paris shed 0.7 percent and Frankfurt was off 0.7 percent.
“It’s expected this latest NK aggression, could further intensify geopolitical tensions,” said Stephen Innes, head of Asia-Pacific trading at OANDA.
“The key now is how the international community will respond given how ineffective the tightened UN sanctions have been at discouraging North Korea’s ambitions.”
Sunday’s test was of a device that could be mounted on an intercontinental missile capable of reaching the United States, North Korea claimed.
Chang Jaechul, chief economist at KB Securities, warned: “If North Korea ratchets up provocations again to protest sanctions and pressure from the international community, tensions on the Korean Peninsula could escalate further to a different level from previous cases.
“Still, a possibility of a military clash is low on the peninsula.”
Adding to pressure on the dollar was a below-expectations reading on US jobs creation for August, which raised questions about the chances of a third Federal Reserve interest rate rise before the end of the year.
However, the greenback was holding its own against the euro after a report said the European Central Bank (ECB) could delay a decision on the future of its bond-buying stimulus program until the end of the year.