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Global stocks on defensive after selloff on North Korea fears

September 5, 2017 4:00 AM
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TOKYO (Reuters) - Asian shares were on the defensive on worries about North Korea but expectations that Beijing will maintain support for its economy ahead of a key congress supported Chinese stocks and copper prices.

MSCI’s dollar-denominated index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.1 percent thanks to gains in Chinese shares, though many markets were in the red.

Japan's Nikkei .N225 fell 0.5 percent while S&P500 mini futures ESc1 maintained losses incurred on Monday following Pyongyang's nuclear test at the weekend. They last stood at 2,466, 0.3 percent below their close on Friday.

The White House declared on Monday that “all options to address the North Korean threat are on the table” while U.S. Ambassador to the United Nations Nikki Haley urged the 15-member U.N. Security Council to impose the “strongest possible” sanctions to deter Pyongyang.

“It’s not clear whether diplomacy can solve this problem given it has failed for the last 25 years,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

“But the U.S. doesn’t seem to be ready for a military action soon either. So we are likely to see continued stalemate, which will keep a tab on share prices.”

The fears about North Korea kept safe-haven assets in demand, with gold XAU= rising 0.15 percent to $1,336 per ounce, after having hit a 11-month high of $1,339.8 on Monday.

In the currency market, the yen, which usually gains on risk aversion due to Japan's net creditor nation status, gained 0.4 percent to 109.32 yen to the dollar JPY=, near Monday's high of 109.22 yen.

The euro EUR= maintained its slim gains on Monday to trade at $1.1896.

But it kept some distance from a 2-1/2-year high of $1.2070 EUR= hit last week on rising expectations that a stronger euro could slow the European Central Bank's (ECB) plans to rein in its bond-buying stimulus scheme.

The Chinese yuan hit a near 16-month high of 6.515 per dollar CNY=CFXS, and has gained 2.0 percent in less than two weeks, a sizable move for the pair.

Shanghai composite index .SSEC of mainland Chinese shares also hit their highest levels since January 2016, owing to solid economic growth in China in recent months and expectations Beijing will not tolerate economic disruption ahead of the Communist Party's congress in mid-October.

Such expectations also helped to lift copper CMCU3 to a near three-year of $6,944.5 per tonne. It last stood at $6,933, up 0.2 percent on the day.

“Now that Beijing fixed its schedule on the national congress, it may no longer accelerate infrastructure spending,” said Tatsufumi Okoshi, senior economist at Nomura Securities.

“We should be mindful of the possibility that iron ores, steel and other non-ferrous metals will peak out soon.”

U.S. crude oil prices edged higher while U.S. gasoline prices slumped to pre-Hurricane Harvey levels, as oil refineries and pipelines in the U.S. Gulf Coast slowly resumed activity, easing supply concerns.

U.S. West Texas Intermediate (WTI) crude futures CLc1 ticked up 0.2 percent to trade at $47.38 per barrel.

The return of U.S. refineries ended a spike in gasoline prices as initial fears of a serious supply crunch faded.

U.S. gasoline futures RBc1 dropped 4.0 percent from their last close, to $1.68 per gallon, down from $2.17 touched on Aug. 31 and back to levels last seen before Harvey hit the U.S. Gulf coast and its large refining industry.

Elsewhere, bitcoin BTC=BTSP dropped further from Saturday's all-time high of $4,979.9 to trade at $4,131 after China on Monday banned the practice of raising funds through launches of token-based digital currencies, or so-called initial coin offerings (ICO).


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