New York: US stocks tanked and bonds gained as North Korean foreign minister Ri Yong-Ho described President Donald Trump’s recent comments as tantamount to a declaration of war.
All major US equity gauges were lower, including the small-cap Russell 2000 Index, which earlier reached a new high. Ri, speaking in New York Monday, also said North Korea can shoot down US warplanes as part of its right to self-defence under the United Nations charter. Investors also were weighing the impact of the Republican tax proposal that would dramatically cut levies on corporations and the wealthy.
Politics dominated trading overseas as well. The Stoxx Europe 600 Index climbed, and the euro weakened against almost all its major peers. Chancellor Angela Merkel won Germany’s election with a smaller share of the vote, while the country’s main far-right party, Alternative for Germany, posted a surprisingly strong result.
The yen stayed weaker as Japan’s prime minister unveiled a fresh stimulus package and said he’ll dissolve the lower house of parliament ahead of a general election. Developing nation stocks headed for a third day of declines. Most government bonds advanced.
“Investors were expecting a victory for Angela Merkel, but there has been a surprise in the relatively poor performance of the CDU and SPD, who suffered their worst results since 1949,” Nick Peters, multi asset portfolio manager at Fidelity International, wrote in a note.
“While this leaves the political situation more uncertain than before, the likelihood of a Jamaica coalition of the CDU, Greens and FDP remains high,” he wrote. “The political implications of the elections remain relatively mute, as the euro zone continues to enjoy a strong and synchronized recovery.”
The process of building a new government could take weeks, so markets may well move on from the result quickly. Trouble continues to foment in the Catalonia region of Spain, while central bank grandees including Federal Reserve chair Janet Yellen and European Central Bank president Mario Draghi are among those scheduled to speak this week.
Meanwhile, the New Zealand dollar lost as much as 1.1% amid disappointment the ruling party failed to get a majority in a weekend vote, kicking off what could be weeks of coalition-building talks. Bloomberg
—With assistance from Andreea Papuc Adam Haigh Sofia Horta e Costa Cecile Gutscher and Samuel Potter.