USAug 9 2017

How Trump's war of words with Korea hit markets

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How Trump's war of words with Korea hit markets
ByHannah Smith

Tensions between the US and North Korea escalated today (9 August) as President Donald Trump said he would respond to any North Korea threat with “fire and fury”.

North Korea has said it is considering carrying out a missile strike on Guam, where the US has a military base.

The news follows recent economic sanctions imposed on North Korea by the international community which have severely restricted its exports.

The nuclear threat from Pyongyang appears to be growing, amid reports it has managed to make a nuclear warhead small enough to fit inside a missile.

North Korea has claimed it now has the ability to hit mainland US with its long range missiles.

Investment experts were swift to remark on the impact of the war of words on markets - and how this will hit your clients' investment pots.

John Redwood, chief global strategist at Charles Stanley, said the most likely outcome from this escalating war of words is still the avoidance of war.

He noted this new rhetoric comes hard on the heels of an agreement between the US, China, Japan, Russia and South Korea that they will pursue a peaceful approach to North Korea’s weapons development.

“Reports reached the media that maybe North Korea has developed a nuclear weapon that can be attached to a ballistic missile rather sooner than people feared.

"Mr Trump said, if the US is threatened by North Korea, it would be met with "fire and fury like the world has never seen".

"This naturally invited similar rhetorical responses from North Korea. They decided to raise the spectre of a missile attack on the area around the US island military base of Guam which is close enough to be within their possible range.

“There was no formal statement from the US administration that its policy has changed. The US is still a supporter of the UN resolution requiring member states to seek a diplomatic solution.

"South Korea remains keen to reduce tensions with its neighbours and is not calling for military escalation by its ally the US. The most likely outcome remains the avoidance of war.

"There is no military option for the US that avoids substantial damage to South Korea, and no military option for North Korea that allows victory."

Mr Redwood noted markets in Asia fell slightly on the heightened verbal tensions.

“This seems like a proportionate response to a crisis so far characterised by intemperate language,” he added.

Julian Chillingworth, chief investment officer at Rathbones, noted rising tensions caused the US market to give up gains yesterday (8 August) in spite of record jobs data.