While this week has been more or less quiet in terms of actual economic events affecting the financial markets, it was quite the opposite in terms of politics: this week US President Donald Trump made several controversial comments that sparked a discussion on whether the United States would be going to war with North Korea.
Needless to say, such major fundamental events always have an effect on the markets. In this particular case it was Asian stocks (particularly in South Korea, which is dangerously close to a potential war zone) that dropped significantly – now they seem more insecure than ever, and investors are directing their attention to other safe-haven instruments such as gold, the Swiss franc, and the Japanese yen.
The currency of Korea, the won, also suffered losses against the dollar, dropping to its lowest this month as a result of the growing tensions in the region.
Australian markets are also somewhat affected, while the state of the markets in Japan is unclear since the country was celebrating a holiday and the market was not open. The American stock market also suffered amid the news, as did the stock markets in London, Paris, and Frankfurt.
So, what happened exactly?
North Korea, which has been more active in its testing of military weapons over the past few years, announced its intentions to fire missiles into Guam, which is officially a US-controlled territory. It is important to note that the Korean war never officially ended, so at least on paper relations between the United States and North Korea are not good.
In recent months tensions with North Korea came to light also because the communist state released a prisoner who was an American citizen, who reached the US in a terrible physical state. The young man showed signs of extensive brain damage; his condition was so bad that it completely baffled American doctors, and he soon died. This story rattled the West and caused people to speculate that North Korea is up to something.
Instead of addressing North Korea’s plans of attack through the accepted diplomatic channels, Trump took to Twitter to talk about retaliation, and then reaffirmed in an interview that he is ready to go to war if North Korea does attack any American territories.
This newly-added level of serious political insecurity rattled the global financial markets. The dollar marked new decreases against the yen. In addition, the yen is gaining on the USD due to issues with the American treasury and a possible default coming in the next two to three months.
Clearly this is a complex issue. So far neither country has attacked, but considering that President Trump and Supreme Leader Kim Jong-un have got to be the two most unpredictable leaders in the world right now, tensions are definitely growing steadily. Make sure you watch out for any related news and see how the markets are responding as more information is flowing in.
