Asian stocks fell and the Japanese yen and Swiss franc gained on the mooted possibility of North Korea conducting another hydrogen bomb test, this time in the Pacific Ocean.
North Korean Foreign Minister Ri Yong Ho said on Friday he believes the North could consider a nuclear test on an “unprecedented scale” in the Pacific Ocean, South Korea’s Yonhap news agency reported.
MSCI’s broadest index of Asia-Pacific shares outside Japan handed back earlier gains and was down 0.4% after falling 0.7% the previous day.
The index had risen to a decade high on Tuesday, lifted as Wall Street advanced to record levels before falling back after the Fed heightened expectations for a third interest rate hike this year.
Japan’s Nikkei slipped 0.2% and Australian stocks advanced 0.2%. South Korea’s KOSPI fell 0.5% on the latest bout of geopolitical tensions.
Shanghai was down 0.5% after S&P Global Ratings downgraded China’s long-term sovereign credit rating on Thursday, less than a month ahead of one of the country’s most sensitive political gatherings, citing increasing risks from its rapid debt build-up.
The dollar fell 0.3% to 112.140 yen, pulling away from a two-month high of 112.725 touched on Thursday when U.S. yields spiked on the back of the Fed’s hawkish stance.
The Swiss franc rose 0.2% to 0.9687 franc per dollar. The yen and franc are often bought in times of broader risk aversion.
Safe-haven gold ticked up, with spot prices up 0.2% at $1,293.70 an ounce, after marking its lowest since August 25 at $1287.61 in the previous session on a firmer dollar.
Apart from geopolitical risks, the focus was on how the region’s markets would fare when the Federal Reserve takes a step towards normalising monetary policy, as it projected on Wednesday following its policy meeting.
“It is difficult to pass a verdict on the Fed’s stance until it actually starts its balance sheet reduction and the markets can gauge its effects,” said Kota Hirayama, senior economist at SMBC Nikko Securities in Tokyo.
“Fundamentals continue to support emerging markets including those in Asia, although the Fed’s latest stance did add a layer of uncertainty.”
The S&P 500 lost 0.3%, snapping a four-day winning streak.
The Dow fell 0.25% and Nasdaq dropped 0.5% on Thursday as the US equity market braced for a third interest rate hike this year. The United States ordering new sanctions against North Korea was also seen to have weighed on Wall Street.
In currencies, the Australian dollar was down 0.2% at $0.7917 after sliding 1.2 percent the previous day.
The Aussie was hurt on Thursday when Reserve Bank of Australia Governor Philip Lowe said that the central bank does not have to follow a general move globally to raise interest rates.
A sharp drop in the price of iron ore, Australia’s main export commodity, to a two-month low, has also weighed on the currency.
The euro inched up 0.1% to $1.1954 and on track to end the week 0.8% lower.
The dollar index against a basket of six major currencies was down 0.2% at 92.052.
Crude oil prices were little changed amid a wait-and-see mood as ministers from the Organization of the Petroleum Exporting Countries, Russia and other producers meet later on Friday to discuss a possible extension of the 1.8 million barrels per day of supply cuts to support prices.
While many analysts expect an extension of the deal beyond next March, a number of them noted that prices have risen high enough to tempt countries to boost production above agreed levels.
Brent crude was down 0.1% at $56.37 a barrel after reaching a five-month high of $56.53 overnight.