Monday 03:10 BST
What you need to know
- Haven assets including yen, gold rally after latest North Korea nuclear test
- South Korea’s Kospi drops 0.8 per cent, won falls 1 per cent
- Equity indices lower across the Asia Pacific region
- Gasoline prices drop 3 per cent as US refineries restart operations
The latest nuclear weapons test by North Korea once again shook markets in the region, with South Korea’s stocks and currency suffering while havens including the yen and gold received a boost. Gasoline prices also dropped markedly as refineries in the US restarted in the wake of tropical storm Harvey.
South Korean stocks and the won retreated after North Korea said it had tested a hydrogen bomb capable of being mounted on a ballistic missile.
The benchmark Kospi Composite index opened 1.7 per cent lower, later trimming losses to a decline of 0.7 per cent. The South Korean won was down 0.9 per cent against the US dollar at Won1,130.70.
North Korea said on Sunday that the test was a “perfect success”. The test was estimated to have been about 10 times more powerful than previous detonations. Jim Mattis, US defence secretary, warned North Korea that any threats to the US or its allies would be met with a “massive military response”.
Haven assets were in demand, with the Japanese yen firming as much as 0.9 per cent against the greenback though it later pulled back to be 0.5 per cent stronger at ¥109.76 per dollar.
Gold was up 0.5 per cent at $1,332.30 per ounce, having gained as much as 0.9 per cent earlier in the session. That brought the precious metal to its highest level in nearly 10 months, just shy of the intraday high touched on November 9, 2016 in response to US presidential election results.
Equities were broadly lower amid the geopolitical tensions and foreign exchange movements.
Tokyo’s broad Topix was down 1 per cent as industrials fell 1.1 per cent and information technology stocks dropped 1.4 per cent. In Hong Kong the Hang Seng Index was off 0.4 per cent with the real estate segment dropping 0.8 per cent.
In Sydney the S&P/ASX 200 index was off 0.4 per cent as financials fell 0.8 per cent. Shares in Commonwealth Bank of Australia were down as much as 1.5 per cent as Australia’s largest lender announced it was revamping its board of directors in the wake of a money laundering scandal.
Forex and fixed income
Forex markets’ reaction to the latest rumblings in Pyongyang were mixed, with the Australian dollar 0.1 per cent weaker at $0.7959. The Chinese renminbi’s rate offshore was 0.1 per cent firmer at Rmb6.555 per dollar, while the onshore rate was little moved at Rmb6.553.
The dollar index that tracks the greenback against a basket of global peers was off 0.2 per cent at 92.641.
Sovereign bonds were little moved. The yield — which moves in the opposite direction to price — on the 10-year US Treasury was flat at 2.166 per cent. That on the equivalent South Korean government bond was up 2 basis points at 2.284 per cent, while the 10-year Japanese government bond yield was unchanged at minus 0.016 per cent.
Australian government notes were benefiting somewhat as equities fell, with the yield on the 10-year note down 2 bps at 2.636 per cent.
Gasoline prices fell as much 3.2 per cent in Asia as refineries in the US began to restart after tropical storm Harvey moved away. Nymex October gasoline futures were down 3 per cent at $1.6951 a gallon after ending Friday 1.8 per cent lower.
The impact on crude oil prices was mixed. Brent crude, the international benchmark, was down 0.6 per cent in Asia trading at $52.46 a barrel while West Texas Intermediate, the US marker, was up 0.3 per cent at $47.44.
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