Picture: THINKSTOCK
Picture: THINKSTOCK

London — Shares and other risk assets barely moved and gold fell on Friday as traders paid little attention to the latest missile test by North Korea, shifting their focus to where and when interest rates will go up.

London, Frankfurt and Paris were a shade lower and futures pointed to a steady start for Wall Street after Pyongyang fired a second test missile in as many weeks over Japan, but both regions looked set for their best week since July.

The yen was also pushed lower to ¥111.20 to the dollar in the currency markets, but that, too, was a continuation of a trend. The Japanese currency has seen its biggest fall in 10 months this week, while the dollar is headed for its biggest rise since April, thanks to a revival in US inflation data and bets the Federal Reserve could raise rates again this year after all.

"You have risk appetite returning in the markets more generally at the moment, so you have all these forces pushing down the yen," said Vasileios Gkionakis, global head of forex strategy at UniCredit.

Britain’s pound was the other main stand-out, rising to a 14-month high of $1.3430 as the Bank of England reiterated that it might soon raise interest rates for the first time in a decade.

"If these data trends of reducing slack, rising pay pressure, strengthening household spending and robust global growth continue, the appropriate time for a rise in the bank rate might be as early as in the coming months," Gertjan Vlieghe, normally one of the Bank of England’s most dovish members, said.

Sterling was also on course for its best week in more than eight years on a trade-weighted basis, and since November 2016, against the euro, which finally looks to have cooled following its surge this year. "If they don’t [hike rates] this time, their credibility will be lost completely for the next few years," Gkionakis said. Markets expect the bank to move premises in November, he added.

The Bank of England signals fed into bond markets, too. Yields pushed up after dipping overnight on the geopolitical tensions. Safe-haven gold was also heading for its biggest weekly drop since July.

North Korea’s latest test missile flew over Japan’s northern island of Hokkaido before landing about 3,700km into the Pacific Ocean, which would be far enough to reach the US Pacific territory of Guam.

Germany’s 10-year government bond yield, the benchmark for the region, inched up to 0.43% to flirt with its biggest weekly rise since late June.

US yields have also jumped. US Fed funds rate futures on Friday were pricing in a roughly 45% chance the Fed will raise rates by December, compared to about 25% at the start of this week.

Crypto-crush

US stock futures pointed to an almost flat start for the S&P 500, which is on track for a near 1.5% rise this week after another run of record highs.

MSCI’s Asia-Pacific share index excluding Japan shed 0.1% in reaction to the North Korea missile overnight, though it was still up 0.7% on the week. Japan’s Nikkei gained 0.5% and a more than 3% jump gave it its best week since November in a directly inverse move to the yen.

"There have been reports (for a while) suggesting North Korea is preparing a missile launch, so this was by no means a surprise," said Hirokazu Kabeya, chief global strategist at Daiwa Securities. "In a way, this seems like something markets have experienced before, thus producing a limited reaction."

Oil prices largely held the gains that had tested multi-month highs the previous day as the clean-up after hurricanes in the US meant a firmer tone for demand. Brent crude futures traded at $55.66 a barrel, up 0.3% on the day and 2.5% on the week. They hit a five-month high of $55.99 on Thursday.

Elsewhere, bitcoin retreated another 6.5% after having tumbled 16% on Thursday when Chinese news outlet Yicai reported that China plans to shut down all bitcoin exchanges by the end of September.

BTCChina, one of China’s top three exchanges, said on Thursday that it would stop all trading from September 30. The crypto-currency was down for an eighth consecutive day at close to $3,000 and was on track for its worst week since 2013, having slumped almost 30% since Monday.

Reuters

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