World stock markets spiralled lower on Tuesday after North Korea fired a ballistic missile over Japan, deepening geopolitical worries but sending the euro and gold hurtling higher.
Pyongyang fired the missile over Japan and into the Pacific Ocean, in a major escalation that triggered global alarm and a furious response from Tokyo.
Investor sentiment was also battered by monster storm Harvey in Texas, where it swamped streets and highways with unprecedented rainfall.
“The combination of North Korea s missile launch and the devastating impact of Harvey is weighing on risk appetite today,” Oanda analyst Craig Erlam told agencies.
“Any increase in geopolitical risk, particularly involving North Korea, triggers a move to safety in markets as investors become increasingly concerned about the potential for things to escalate rapidly.
“The damage caused in Houston is also weighing on sentiment, due to both the sheer devastation it has caused and the uncertainty over the cost and economic impact.”
The shock developments sent investors fleeing for traditional safe-haven assets like the yen, gold, and US treasuries.
The yen surged to four-month dollar peak and precious metal gold forged a path to a nine-month pinnacle at $1,326.16 per ounce.
The euro topped $1.20 for the first time since January 2015, as traders also bet on the winding down of eurozone crisis-era stimulus measures and eyed growing economic optimism in the region.
The single currency touched $1.2070 — which was the highest level since January 5, 2015.
However, Asian and European stock markets crumbled as investors dumped risky equities.
“Equities are firmly in the red after North Korea delivered its biggest provocation in two decades,” said Accendo Markets analyst, Mike van Dulken.
Forex.com analyst Fawad Razaqzada agreed.
“Risk-sensitive stocks have fallen sharply while perceived safe-haven gold, Japanese yen and Swiss franc have soared higher,” he said.
Investors were concerned that the North Korean missile “may lead to retaliation from not only Japan and South Korea but the United States too, especially given the rhetoric Donald Trump deployed a couple of weeks ago,” the analyst said.
Flight to quality
“Rising geopolitical tensions have prompted a flight to quality, benefiting safe haven assets at the expense of risk markets,” NFS Macro analyst Nick Stamenkovic told agencies.
At the same time, the greenback has been hampered by ongoing uncertainty over US President Donald Trump s tax-cutting plans, as well as North Korea developments.
“Euro/dollar has hit its highest level since the first trading day of 2015 today and broken through the psychological $1.20 level along the way,” added Erlam.
“It seems geopolitical risk and the devastation in Houston have turned people away from the dollar.”
Key figures around 1340 GMT
New York – Dow: DOWN 0.5 percent at 21,712.25 points
London – FTSE 100: DOWN 1.0 percent at 7,324.03
Frankfurt – DAX 30: DOWN 1.8 percent at 11,905
Paris – CAC 40: DOWN 1.2 percent at 5,017.44
EURO STOXX 50: DOWN 1.2 percent at 3,380.05
Tokyo – Nikkei 225: DOWN 0.5 percent at 19,362.55 (close)
Hong Kong – Hang Seng: DOWN 0.4 percent at 27,765.01 (close)
Shanghai – Composite: UP 0.1 percent at 3,365.23 (close)
Euro/dollar: DOWN at $1.2030 from $1.2062
Pound/dollar: DOWN at $1.2947 from $1.2964
Dollar/yen: UP at 108.59 yen from 108.45 yen
Oil – Brent North Sea: DOWN 56 cents at $51.42 per barrel
Oil – West Texas Intermediate: DOWN 23 cents at $46.34