Four ways North Korea's missile launch over Japan is hitting global markets

Key Points
  • Asian markets slumped, and the market is set to open sharply lower.
  • Other assets such as currencies also made sharp moves — but some may seem counterintuitive.
  • Gold is also on the move.
Four ways North Korea's missile launch over Japan is hitting global markets

North Korea launched a ballistic missile that passed right over Japan, and that's set markets on high alert, with four big movers.

US stock futures

U.S. stock futures were a big early mover, with the Dow Jones industrial average mini futures dropping as much as 147 points to 21,644 in a knee-jerk reaction. That compared with the index's close on Monday at 21,808.40.

The DJIA futures later regained some lost ground, trading down a little more than 120 points in premarket trading.

Japanese yen

Perhaps counterintuitively, Japan's currency move higher — because it generally does well when nervous investors are looking to park their money somewhere secure.

It climbed against the greenback, with the dollar fetching as little as 108.36 yen in early Tuesday trade, down from levels approaching 111 yen earlier in the month.

Against other currencies, the yen moved more sharply. The euro/yen was at 130.72 in early trading Tuesday, compared with levels just under 131 on Monday. The Australian dollar was fetching as little as 85.67 yen in early Asia trade, compared with touching levels over 87 yen on Monday.

South Korea's currency

Yen strength also collided with a hit to South Korea's won.

The yen was fetching as much as 10.3827 won in early Asia trade, compared with as little as 10.2258 won on Monday.

The won also dropped against the greenback, with the dollar fetching as much as 1,128.60 won in early Asia trade, compared with as little as 1,117.47 won on Monday.

Asia stocks more broadly

Stock markets across Asia lost ground, although the declines weren't as sharp as during previous North Korean provocations.

North Korea tensions could produce buying opportunities

South Korea's Kospi index dropped as much as 1.44 percent in early trade, while Japan's Nikkei index fell as much as 0.87 percent to a four-month low before recovering slightly.

Gold also on the move

One asset that tends to rise during times of heightened anxiety is gold.

The yellow metal initially appeared to dip, with spot gold trading as low as $1,313.74 an ounce in early trade, down from its close Monday at $1,317.10. Later it recovered, however, rising 1.13 percent to trade at $1,330.10.

Jeffrey Halley, senior market analyst at currency trading platform Oanda, said in a note on Tuesday that he expected gold would be bid higher from here.

"The events of this morning have somewhat overshadowed gold's performance in the New York session where gold proceeded directly to go and put in a monster $20 rally from its opening," he said. "Trump's negative comments on the NAFTA renegotiation and no tightening signals from Jackson Hole see selling renew with vigor in New York."

Up next: The US and Chinese responses

Japan's Prime Minister Shinzo Abe called North Korea's latest launch an "unprecedented, serious and significant threat," and markets appeared to agree. South Korea also warned that it was gearing up its military to hit back at the North, if necessary.

"Markets are on the defensive, fearing an escalation in tensions in Northeast Asia," Singapore-based bank DBS said in a note on Tuesday.

The North Korea problem: What of the military option?

While markets walked back some of their early gyrations, DBS warned it was "too early to let down your guard," citing the need to watch for responses from the U.S. and China.

It said there was "no guarantee that U.S. President Donald Trump will refrain from fiery rhetoric in his response."

But for now, the reason markets haven't reacted more strongly to North Korea's behavior is that they've become accustomed to the nuclear pariah's antics.

"The very simplistic and glib answer is we're just getting used to this. We're inured to North Korea's saber-rattling," Rob Carnell, head of research for Asia at Dutch bank ING, said on Tuesday.

He noted that North Korea always fires over the sea in a "pretend alarmist" move, and markets may feel that there's no real reason to get too concerned.

Carnell also said that excluding the U.S. president, American politicians and officials were making softer remarks, suggesting that it may be possible to get North Korea back to the negotiating table again.

"North Korea may be trying to cement its strength before making some concessions," he said.