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US nuclear jitters boost Swiss franc and gold

The Swiss franc is the stand out beneficiary from escalating nuclear tensions between the US and North Korea, with a modest jolt of nerves denting stocks and boosting haven assets.

Resuming its position as a traditional bolt-hole in times of political or financial stress, the franc is gaining the most against the euro since October last year, strengthening 0.6 per cent on Wednesday to chip away at a long-awaited pullback.

But broader market moves were limited. Gold has gained 0.7 per cent on the day to $1267 an ounce, while US 10-year Treasury yields have lost just 0.01 percentage points. (Yields fall when prices rise.)

“Unless the situation escalates, we don’t look for a material and long lasting contagion effect of the overnight trading pattern, expecting markets to look through the geopolitical tensions”, said Chris Turner, head of FX strategy at ING.

Europe’s main equity indices are also following their Asian counterparts lower this morning after president Donald Trump promised “fire and fury” against North Korea after Pyongyang produced details of a miniaturised nuclear weapon that can be carried on its ballistic missiles.

Ramping up tensions further, North Korean leader Kim Jong Un has said he is weighing whether to strike the US Pacific territory of Guam, according to the country’s state news agency this morning.

The concerns have dented the UK’s FTSE All-Share index by 0.55 per cent this morning, while France’s CAC40 has lost 0.8 per cent and Europe’s wider Stoxx 600 is down 0.4 per cent. All of Europe’s main banking stocks have also fallen into the red.

The yen, another favourite troubled times, has rallied against the dollar, pushing it to its strongest level since mid-June at ¥109.95.

“It remains to be seen whether US diplomatic efforts will prove successful at helping to dampen escalating tensions, which have the potential to trigger a sharp strengthening of the yen in the year ahead”, said Lee Hardman, currency analyst at MUFG.

But analysts noted the geopolitical tremors would have limited effect in an otherwise quiet August.

“Thin summer trading conditions may well militate against any of today’s data and events having anything more than a passing impact”, said Marc Otswald at ADM Investor Services.

Charts via Bloomberg