Haven assets in demand as Korea talks collapse


Wednesday 07:30 BST

What you need to know

  • Haven assets in demand after Pyongyang calls off talks with Seoul
  • US 10-year Treasury yield holds near seven-year high
  • Dollar index steady around 2018 highs
  • European bourses set to make steady open
  • South Korea construction shares slide

Overview

Asia-Pacific stocks dipped after North Korea pulled out of high-level talks with South Korea and after the 10-year US Treasury yield rose to its highest level in seven years overnight.

Hot topic

There is an sense of caution on global markets after North Korean state media said Pyongyang was pulling out of talks with the US set to be held on Wednesday.

Haven currencies are rising, with the yen stronger by 0.1 per cent and the Swiss franc firmer by 0.2 per cent. Gold is up 0.3 per cent, even with the dollar trading around some of its strongest levels of the year.

Asian stocks are mainly lower, while European bourses are expected to make a steadier start.

The announcement sent South Korea’s Kospi as much as 0.5 per cent lower, before it staged a recovery to be flat in afternoon trading. Construction-related stocks slid, with Sampyo Cement falling 11.9 per cent and Hanil Cement shedding as much as 9.3 per cent. Steel producers Hyundai Steel and Posco fell 6.1 per cent and 3.1 per cent, respectively.

The withdrawal was in response to a joint military exercise between South Korea and the US, which North Korea called a “flagrant challenge to the Panmunjom Declaration and an intentional military provocation”.

The decision also cast doubt on a potential landmark summit between North Korean leader Kim Jong Un and US President Donald Trump in Singapore slated for June 12.

Forex and fixed income

The dollar index, a measure of the US currency against a basket of peers, was up 0.1 per cent at 93.286 after briefly hitting overnight its highest level this year. That move came as the yield on the 10-year US Treasury climbed to its highest point since late 2011 on Tuesday on speculation the US Federal Reserve might adopt a more hawkish stance following positive readings for retail sales.

“The ongoing rise in yields in the US reflects market expectations for decent economic growth and gradually rising inflation expectation. Ultimately, this bodes well for risk assets such as equities and corporate credit, although in the near term market sentiment will remain jittery,” said Tai Hui, chief market strategist for Asia Pacific, JPMorgan Asset Management.

In Asia trade, the yield on the 10-year US Treasury fell almost 1 basis point to 3.065 per cent. The yield on 10-year Japanese government bonds was virtually flat at 0.049 per cent.

The Japanese yen was steady at ¥110.28 against the dollar, while the UK pound was flat at $1.3500 and the euro dipped to $1.1828.

Equities

In Japan, the Topix index was off 0.1 per cent with the financial and technology sectors off 0.6 per cent and 0.4 per cent, respectively. Preliminary figures showed Japan’s economy contracted in the first quarter for the first time since 2015.

Hong Kong’s Hang Seng index shed 0.1 per cent as technology stocks dropped 0.1 per cent, while the Hang Seng China Enterprises index of Hong Kong-listed Chinese companies dipped 0.1 per cent. The CSI 300 index of Shanghai- and Shenzhen-listed stocks was off 0.3 per cent. The declines came as Liu He, China’s vice-premier and top economic adviser, visited Washington for trade talks.

Commodities

Oil prices retreated but remained within sight of the previous day’s near-four-year high due to concerns over Venezuela’s exports and an expected drop in Iranian supply on US sanctions. Data from the American Petroleum Institute showed a surprise 4.85m barrel increase in US crude inventories in the week to Friday.

Brent crude was off 0.2 per cent at $78.30 a barrel and US marker West Texas Intermediate was down 0.3 per cent at $71.13 a barrel.

Gold was 0.3 per cent higher at $1,293 an ounce.

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