The Single Greatest Threat To Financial Markets

North Korea has once again ratcheted up geopolitical tensions with its most recent missile test, and the effects are being felt instock markets worldwide.

It’s just the latest example of just how sensitive the low volatility environment in global markets can be to sudden, unexpected political developments. While stocks have stopped reacting as much to headlines around US President Donald Trump, this latest development in North Korea provides a reminder of the ever-present risk of geopolitical strife.







“An even greater crisis may be looming in Korea,” Greg Valliere, chief global strategist at Horizon Investments, said in a client note on Tuesdays morning. “Chances of strategic strikes on North Korean missile sites have increased significantly after a reckless missile launch last night that unnerved the Japanese. Trump’s generals have plans drawn up, yet they are urging him to delay any action — but sanctions and war games have their limits, and this issue is now the single greatest threat to financial markets.”

Here’s a round-up of the damage in stocks caused by North Korea’s decision to fire a missile over Japan:

US

  • The benchmark S&P 500 declined 0.1% to 2,442.73 as of 1:01 p.m. ET after falling as much as 0.7% earlier in the day
  • The more tech-heavy Nasdaq 100 climbed 0.3% after declining more than 0.9% in the morning hours
  • The Dow nudged 0.1% higher after losing as much as 0.6% in the morning
  • The CBOE Volatility Index — or VIX — climbed 5.2% to 11.91 following a 27% spike earlier in the day. The stock market fear gauge hit a record low last month, but has spiked several times over the past couple weeks on North Korea news

S&P 2 dayA look at the S&P 500’s early-day decline on the North Korea news. The benchmark has now largely recovered losses.Business Insider / Joe Ciolli, data from Bloomberg

Asia

  • Japan’s Topix index declined as much as 0.7%, and eventually closed 0.2% lower
  • South Korea’s Kospi index plunged as much as 1.6%, before paring that loss and finishing only 0.2% in the red
  • The S&P/ASX 200 Index in Sydney decreased 0.7%
  • Hong Kong’s Hang Seng Index lost 0.4%
  • The Shanghai Composite Index fluctuated for much of its session before closing slightly higher

Europe

  • The Stoxx Europe 600 index slid as much as 1.7% to the lowest intraday level in almost seven months
  • The UK’s FTSE 100 index lost 0.8%, headed for the biggest drop in roughly three weeks
  • Germany’s DAX index fell 1.4% to its weakest level in more than five months

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  • JohnDille

    WELL… ACTUALLY… LITTLE KIMMY BOY HAS BEEN THREATENING TO SHOOT MISSILES CLOSE TO GUAM… WHICH WOULD BE A SHOT ACROSS THE AMERICAN BOW! WHAT WOULD TRUMP DO IN RESPONSE??? THERE IS THE POTENTIAL NIGHTMARE OF THIS SITUATION… WE HAVE NOT RESPONDED TO NORTH KOREAN ANTICS IN THE PAST… BECAUSE DOING SO WOULD VERY LIKELY GENERATE A CATASTROPHE!!! NORTH KOREA HAS CREATED A MEXICAN STAND OFF SITUATION… IF WE HIT THEM… SEOUL GOES BYE BYE!!! MILLIONS COULD DIE… IN JUST THE FIRST 24 TO 48 HOURS!!! AND THAT IS IF OUR RESPONSE DOS NOT LEAD TO A REGIONAL… OR WORLD.. WAR!!! THE SCARY THING WITH TRUMP IS… HE SEEMS TRULY INCAPABLE OF UNERSTANDING THAT!!! TRUMP NEEDS TO UNDERSTAND THIS LITTLE… SLIGHTLY EDITED… BIBLE VERSE….. FOR WHAT PROFITETH A MAN IF HE GAINS ALL OF KOREA, BUT LOSETH HIS SEOUL!!! AND THEREIN IS THE HEART OF THIS WHOLE NORTH KOREA SITUATION!!!

  • hardlybill

    I couldn’t agree with you more. I’m sure we will never hear the recording, or even see a transcript of the conversation between Abe and Trump. I have to wonder what US citizens would feel if Kim fired a bow shot across the United States. I can understand why that missile wasn’t shot down by either US forces or Japan when the capability is clearly there. It gives me hope that someone is holding the reins. I just hope that Kim understands how shaky the ground is getting under his feet. At this juncture, I believe that Trump is getting to be the least of his worries.

  • JohnDille

    THE IDIOT IN CHARGE OF NORTH KOREA IS JUST AN EGOTISTICAL SELF CENTERED DIMWIT WHO CAN DO NO REAL DAMAGE TO ANYTHING… EXCEPT TO HIS OWN PEOPLE… UNLESS SOME OUTSIDER DOES SOMETHING STUPID AND SETS OFF HOLY HADES!!! WHICH BRINGS US TO THAT EGOTISTICAL SELF CENTERED DIMWIT WHO IS CURRENTLY SPENDING SOME OF HIS TIME IN THE WHITE HOUSE… WHEN HE IS NOT BUSY WITH HIS DAY JOB… GOLFING AND DRUMMING UP BUSINESS FOR HIS VAST CORPORATE EMPIRE!!! NOW THAT SELF CENTERED EGOTISTICAL DIMWIT IS A REAL DANGER TO THE MARKETS… AND TO AMERICA… AND TO THE WORLD!!!

  • Mark V

    Yawn -ho hum