World stock markets and the dollar slid yesterday after US President Donald Trump warned of “fire and fury” in retaliation to North Korea’s nuclear ambitions, sending traders fleeing to safe-haven investments.
North Korea raised the stakes just hours later, saying it was considering missile strikes near US strategic military installations on the Pacific island of Guam.
Trump’s comments marked a sharp intensification of Washington’s rhetoric over the North’s nuclear and missile programmes, which saw a seventh set of United Nations sanctions imposed on it at the weekend.
“North Korea best not make any more threats to the United States,” said Trump, speaking from his golf club in New Jersey on Tuesday. “They will be met with fire and fury like the world has never seen.”
The comments dragged Wall Street down into negative territory in late Tuesday trading, snapping a nine-day streak of record closes by the Dow.
US stocks fell further yesterday with Trump taking to Twitter to say that the United States’ nuclear arsenal was now “more powerful than ever before” in a fresh warning to North Korea.
“US stocks are lower in early action, with sentiment getting uneasy as geopolitical tensions ramped up yesterday between the US and North Korea, while some cooler-than-expected Chinese inflation reports are doing little to support conviction,” said analysts at the Charles Schwab brokerage.
In Europe, equities dived with London losing 0.6% to 7,498.06 points, while Frankfurt shed 1.1% to 12,154 points and Paris fell 1.4% to 5,145.70 points.
The news was also greeted with dismay by traders in Asia, with Tokyo down 1.3%, Hong Kong losing 0.4% and Seoul registering a 1.1-percent decline.
Investors shunned risky equities and flocked instead to traditional safe-havens like precious metal gold, the Japanese yen, and bonds.
“European stocks have suffered greatly today as traders were prompted to cut-and-run due to the escalating tensions between the US and North Korea,” said market analyst David Madden at CMC Markets UK.
“The stand-off between the two countries has encouraged dealers to dump stocks and seek safe haven investments like gold,” he added.
Financial analyst Connor Campbell at Spreadex noted the Dow has managed to avoid the more dramatic drops in European indices and that it remains unclear whether the rally in the blue chip gauge is really over or not.
“For most of Trump’s tenure the Dow has left the dollar to deal with the President’s constant policy disappointments, so it will be interesting to see whether today’s drop marks a change in direction for the record-breaking index, or if it is merely a knee-jerk blip exacerbated by an empty economic calendar,” said Campbell.