Stock Market Update: Asia in the Red on North Korea Turmoil
On Wednesday (06/09) Asian stocks are following the example of Wall Street's slide overnight. The benchmark MSCI Asia was down 0.66 percent by 10:15 am local Jakarta time on Wednesday morning. This weak performance is attributed to persistent concerns about North Korea's provocative behavior, while any non-violent sanctions against North Korea will unlikely encourage the nation to stop its nuclear program.
Concerns about North Korea, which held its biggest-ever nuclear test last Sunday (03/09), remains the main focus of investors. Overnight US stocks closed in red territory with the S&P 500 experiencing its biggest single-day loss in about three weeks. The Dow Jones Industrial Average index fell 1.07 percent to 21,753, the S&P 500 index fell 0.76 percent to 2,457, while the Nasdaq Composite index dropped 0.93 percent to 6,375. US markets were closed for Labor Day on Monday (04/09) and therefore the above-mentioned performances on Tuesday were markets' first reaction in regular trading since geopolitical turmoil in North Korea heightened over the weekend.
Earlier this week a North Korean diplomat threatened that his country would deliver "gift packages" to the US if the latter continues to put pressure on Pyongyang. Meanwhile, South Korea said it expects more missile tests in North Korea. US President Donald Trump responded on twitter (on Tuesday) stating that both Japan and South Korea are allowed to purchase a "substantially increased amount" of military equipment from the US.
Investors are expected to keep focused on developments related to North Korea, while also keeping a close eye on the European Central Bank (ECB) policy meeting (scheduled for Thursday) as well as the US Federal Reserve's Open Market Committee (FOMC) meeting on 19-20 September. In recent weeks the flow of capital into emerging markets waned and the upcoming monetary policy meetings in Europe and the US could prove crucial in dictating these flows. At tomorrow's ECB meeting investors will be looking for clues about the timing of an end to the ECB's ultra-loose monetary policy.
Meanwhile, the US dollar is on the defensive on Wednesday, especially against the Japanese yen and Swiss franc, indicating risk-averse mood in the broader markets (confirmed by the gold price touching near one-year highs). US dollar weakness is also attributed to Federal Reserve Governor Lael Brainard's remarks on Tuesday when he said US inflation is "well short" of the target. This suggests that the Federal Reserve may become more dovish.
Lastly, investors are also watching Hurricane Irma, which is threatening the Caribbean islands and Florida, just one week after Hurricane Harvey disrupted refineries in Texas.
By 10:45 am local Jakarta time Indonesia's benchmark Jakarta Composite Index was down 0.27 percent to 5,814.43 points, while the Indonesian rupiah had appreciated 0.01 percent to IDR 13,337 per US dollar at the same time.