North Korean Threats Rattle Global Markets -- Update

By Georgi Kantchev Features Dow Jones Newswires

Global markets slipped Friday after fresh threats from North Korea revived the geopolitical fears that engulfed markets earlier this month.

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The Stoxx Europe 600 fell 0.2% in early trading, dragged down by falls in the financial and resources sectors. Bourses across Asia were also flashing red. On Wall Street, futures pointed to a 0.2% opening loss for the S&P 500.

North Korean Foreign Minister Ri Yong Ho said late Thursday in New York that the country may consider a nuclear test of "unprecedented scale" in the Pacific Ocean.

Those comments came after North Korean leader Kim Jong Un said he was considering the "highest level of hard-line countermeasure" in response to President Donald Trump's warning that the U.S. would annihilate North Korea if forced to defend itself or its allies.

This was likely causing investors to be "antsy heading into the weekend, " said Emmanuel Ng, an analyst at OCBC Bank.

Havens got a boost following the North Korean threats. The Japanese yen and the Swiss franc both advanced against the dollar, by 0.4% and 0.2% respectively, and gold rose 0.4%.

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The geopolitical tensions overshadowed investors' focus this week on the Federal Reserve's next moves. The central bank suggested Wednesday that it was open to the possibility of an interest-rate increase in December.

Weak inflation numbers in recent months had made some investors skeptical the Fed would raise rates again in 2017. But after the Fed meeting Wednesday, investors now see a 75% chance of a rate rise by the end of the year, according to Fed-fund futures tracked by CME Group.

For next year, the market expects one more interest-rate increase, while the Fed reaffirmed Wednesday that it foresees three rate rises.

"The market is still way behind the Fed and is underpricing its next moves," said Mike Bell, global market strategist at J.P. Morgan Asset Management.

On Friday, 10-year Treasury yields were down at 2.259%, from 2.278% on Thursday, with yields moving inversely to prices. The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, was down 0.3%.

Investors were also looking to a key speech on Brexit by U.K. Prime Minister Theresa May on Friday, in which she is expected to set out her vision for Britain's future relationship with the European Union after it leaves the bloc in 2019.

The British pound was up 0.1% against the dollar at $1.359. Sterling had strengthened earlier this month after the Bank of England signaled it might raise interest rates as soon as November.

On Sunday, Germany votes in federal elections. Polls suggest that Chancellor Angela Merkel's Christian Democratic Union party is likely to win enough votes to give her a fourth term.

In Japan, gains in the yen sent the Nikkei Stock Average down 0.3% as a stronger currency would hurt the country's key export stocks. Hong Kong's Hang Seng was down 0.8%, while in South Korea the Kospi fell 0.7%.

Chinese shares were broadly down after rating firm Standard & Poor's on Thursday downgraded the country's sovereign credit rating due to risks associated with its increasing debt. The Shanghai Composite Index was off 0.2%, while the Shenzhen benchmark was down 0.3%.

In commodities, Brent crude rose 0.2% to $56.21 a barrel ahead of a meeting by members of the Organization of the Petroleum Exporting Countries on Friday.

Lucy Craymer contributed to this article.

Write to Georgi Kantchev at georgi.kantchev@wsj.com

(END) Dow Jones Newswires

September 22, 2017 04:59 ET (08:59 GMT)