European Morning Briefing: Latest North Korea Launch to Test Markets

Features Dow Jones Newswires

Snapshot:

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Weaker start for stocks; USD/JPY 110.33-34; bund yield 0.418%; Brent crude $55.12; gold $1330.82

-North Korea Fires Missile in Direction of Japan

-ECB's Mersch Believes Europeans Are Willing to Share Some Powers

-Nestlé Buys Majority Stake in Premium Coffee Chain Blue Bottle

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Watch For: Eurozone Labour Cost Index, foreign trade; U.S. retail sales; Eurogroup meeting of finance ministers in Estonia; no major earnings scheduled

Headline News:

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North Korea fired a missile over Japan early Friday local time for the second time in a month, defying rising international efforts to force it to abandon course.

In a rare move, South Korea responded to the launch by immediately conducting a simulated strike of the North Korean launch site, an air base near Pyongyang. In Japan, alerts were sent to smartphones of people living in areas where the missile was projected to pass over soon after the launch was detected. No damage or injuries were reported.

Japanese Prime Minister Shinzo Abe called for an emergency meeting of the United Nations Security Council and for the new sanctions unanimously adopted Monday to be fully enforced.

"We need to make North Korea understand that there is no bright future for them if they pursue this course further," he said.

The latest missile passed over the northern Japanese island of Hokkaido and landed in the Pacific Ocean shortly after 7 a.m. Japan time, a similar path to another missile launched on Aug. 29. It traveled around 2,300 miles, according to South Korea's joint chiefs of staff, further than the roughly 1,700 miles traveled by the previous missile, highlighting the country's progress in developing nuclear weapons that can threaten the U.S.

Europeans are willing to see their governments accept help in areas where the nations aren't able to do the job, a European Central Bank Executive Board member said Thursday, urging European leaders to discuss needed measures to put the eurozone on firmer ground.

Yves Mersch said the current positive economic and political conditions in Europe present "a unique window of opportunity to fix the shortcomings of our economic and monetary union and relaunch the eurozone."

Stocks:

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European equities face opening losses Friday, with DAX futures down 25 points and FTSE 100 futures 14 points lower.

Asian stocks were broadly lower following North Korea's latest missile launch over Japan, but equities there rose slightly even as the yen strengthened.

Moves across markets were largely modest early on, echoing how Asian market participants across asset classes have largely reacted to most of North Korea's missile launches this year. Although there was a brief selloff following the country's nuclear-bomb test earlier this month.

Friday's missile launch is "not a real escalation of what has happened so far," said Woon Tian Yong, an analyst at Informa Global Markets. "This is not something we have not seen before. Markets are not going to take this too [seriously]."

Japan's Nikkei Stock Average was recently up 0.1 while South Korea' Kospi index fell 0.4%.

While there has been muted movement into havens so far Friday, "this situation seems like an emergency," said Takahiro Sekido, Japan strategist with Bank of Tokyo-Mitsubishi UFJ.

Underperforming in Asia were stocks in Hong Kong and Australia, with benchmarks in both down some 0.6%. Impacting those markets were declines of as much as 1% in major bank stocks. Weakness in Chinese lenders has been pressuring Hong Kong's Hang Seng Index in recent days. Lenders are also pushing the market lower in Singapore.

The Dow Jones Industrial Average hit its third record close of the week Thursday, even as other major U.S. indexes edged lower.

Stocks hovered between small gains and losses for much of the day, marking a pause after the Dow industrials, S&P 500 and Nasdaq Composite hit fresh highs together for two consecutive sessions.

Corporate News:

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Nestlé added to its rapidly growing coffee business by acquiring a majority share in specialty coffee roaster and retailer Blue Bottle Coffee.

Thursday's deal will give the Swiss consumer-products giant a 68% stake for about $425 million, a person familiar with the matter said.

Forex:

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USD/JPY slipped as low as 109.55 from 110.28 in early Tokyo trading Friday after Japan issued a nationwide warning to its citizens to take shelter after a missile launch by North Korea over Japanese airspace.

Soon after, there was some recovery but the pair fell again to 109.88 from 110.00 on news of South Korea conducting its own missile firing in response to the North Korean launch.

The dollar had slid Thursday, snapping a three-day winning streak, as investors analyzed U.S. inflation data.

The WSJ Dollar Index, which measures the U.S. currency against 16 others, fell 0.3% to 85.27. It edged lower still in Asia to 85.23. Before Thursday, the index had logged its biggest three-day rally since December.

Though the data provided evidence that inflation has begun to firm after a recent slowdown, many investors remain worried that the trend of weak inflation will prevent the Fed from raising rates again soon.

"We still don't expect the Fed to hike interest rates again this year, but it will return to tightening policy more aggressively next year," said analysts at Capital Economics in a research note.

Meanwhile, the British pound eased lower in Asia having soared 1.4% against the dollar Thursday.

At 0350 GMT, USD/JPY was 110.33-34, EUR/USD was 1.1906-09 and GBP/USD was 1.3394-96.

Bonds:

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U.S. government bonds weakened for a fourth consecutive day after a key measure of consumer prices rose in August.

The yield on the benchmark 10-year U.S. Treasury note edged up to 2.199% from 2.194% on Wednesday, notching its longest streak of increases since early July.

In one signal that the market's expectations for long-term inflation is slightly higher than it was several weeks ago, the 10-year break-even rate, the yield premium of the 10-year Treasury bond to the 10-year Treasury inflation-protected security, was roughly 1.85 percentage points on Thursday, according Tradeweb. That indicates investors expect an annual inflation rate of 1.85% over the next decade, up from around 1.66% in June.

Energy:

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Oil futures were lower in Asian trading, but have been steady in the face of North Korea's latest missile launch.

U.S. and global benchmarks have both risen every day this week, providing the latest North Korea test as a handy reason to oil investors to pull back a touch.

At 0207 GMT, October Nymex was down 0.5% at $49.66/barrel while November Brent was off 0.6% at $55.12.

Metals:

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Spot-gold prices jumped in the immediate aftermath of the North Korea news but have since settled down and were recently 0.1% up at around $1,330.82 an ounce.

Write to paul.larkins@wsj.com

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September 15, 2017 00:20 ET (04:20 GMT)