Asian markets mostly fell with Wall Street while the dollar extended gains yesterday as US interest rate worries resurfaced, while investors were also given a spook by North Korea’s threat to pull out of a historic summit over US demands.
After enjoying a relatively purple patch over the past week, investors were put back on the back foot by solid retail sales data that pointed to a surge in inflation that could push the Federal Reserve to hike borrowing costs three more times this year.
The news boosted expectations for the world’s number one economy and sent benchmark 10-year Treasury yields to a seven-year high.
But the prospect of debt costing more to service hit equities, sending all three main indexes on Wall Street lower.
The losses spread to Asia with Hong Kong falling 0.1% at 31,110.20 and Shanghai 0.7% off 0.7% at 3,169.57.
Tokyo ended 0.4% lower at 22,717.23 after data showed Japan’s economy contracted in January-March for the first time in two years. Wellington sank more than 1%, while Manila, Bangkok and Jakarta were also well down.
However, Sydney rose 0.2% and Seoul edged up 0.1%, while Singapore and Taipei were also slightly higher.
The dollar, which benefits from higher US rates, was holding above the 110 yen mark and around its highest mark since early February.
The euro is around its weakest level this year, with a series of soft economic data out of the eurozone denting the prospects of an end to the European Central Bank’s crisis-era stimulus.
The pound continues to be dampened by Brexit uncertainty. The greenback also surged against high-yielding currencies, with the South Korean won 0.5% off and Australia’s dollar 0.7% lower.
North Korea moved back into the spotlight as it threatened to cancel next month’s historic summit between Kim Jong-un and Donald Trump if Washington seeks to push Pyongyang into unilaterally giving up its nuclear arsenal.
“If the US is trying to drive us into a corner to force our unilateral nuclear abandonment, we will no longer be interested in such dialogue,” first vice foreign minister Kim Kye Gwan said in a statement carried by KCNA state media.
The announcement came as a shock after months of rapid diplomatic rapprochement that has fuelled hopes for peace on the peninsula.
Earlier yesterday it cancelled a meeting with South Korea at the last minute, blaming joint US-South Korean military exercises, which it called a “rude and wicked provocation”.
“Keep an eye on North Korea,” said Greg McKenna, chief market strategist at AxiTrader. “While the South and the US are used to playing these international games the (North) and its leader... are neophytes excited by the prospect of getting a seat at the top table.
“No doubt back channels are being exhausted explaining what’s going on.
But while success seems to be the most likely outcome nothing is certain from this Trump-Kim meeting.”
Pyongyang’s shock announcement came as investors are juggling several other global issues, including the outcome of Trump’s decision to pull out of the Iran nuclear deal, ongoing turmoil in the Middle East and the China-US trade spat.
There are hopes for a positive conclusion to the tariff stand-off between Washington and Beijing, but the latest round of talks will be closely monitored after a previous high-level meeting ended with no agreement and both sides far apart.
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