By Caroline Valetkevitch
NEW YORK, Sept 22 (Reuters) – Jitters over a fresh exchange of barbs between North Korea and the United States drove up U.S. Treasury prices and the yen on Friday while they damped sentiment in the U.S. stock market.
MSCI’s world equity index, which tracks shares in 46 countries, was little changed, and Britain’s main FTSE 100 stock index climbed as Prime Minister Theresa May laid out plans for Britain’s exit from the European Union.
North Korea said it might test a hydrogen bomb over the Pacific Ocean, in response to U.S. President Donald Trump’s recent threat to destroy the reclusive country in a United Nations address.
“Big noise out of North Korea will keep today’s trading defensive,” said Peter Cardillo, chief market economist at First Standard Financial in New York. “While we don’t expect a serious selloff, the geopolitical rhetoric could heat up.”
The aversion to risk drove investors into assets considered safer during times of geopolitical turmoil, like the Japanese yen and Treasuries.
The U.S. dollar had scaled a two-month peak of 112.71 against the yen on Thursday, boosted by the U.S. Federal Reserve signaling this week that it was still on track to raise interest rates by the end of the year, and after the Bank of Japan maintained its bond-buying pledge.
Sterling slipped after May’s speech, but then recovered.
May called for Britain to stay in the European Union’s single market during a roughly two-year transition out of the EU.
YEN GAINS
The Japanese yen strengthened 0.42 percent versus the greenback at 112.02 per dollar, while sterling was last trading at $1.3514, down 0.47 percent on the day. “(The yen) had been significantly under pressure and it’s not totally surprising to see a little bit of a rebound in the yen ahead of the weekend,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
U.S. Treasury prices gained on concerns about conflict with North Korea. Benchmark 10-year notes last rose 6/32 in price to yield 2.2587 percent, from 2.278 percent late on Thursday.
The U.S. Treasury yield curve flattened to its lowest levels since late 2007 overnight, before retracing in the U.S. session.
The Dow Jones Industrial Average fell 25.74 points, or 0.12 percent, to 22,333.49, the S&P 500 lost 1.32 points, or 0.05 percent, to 2,499.28 and the Nasdaq Composite dropped 5.38 points, or 0.08 percent, to 6,417.31.
MSCI’s gauge of stocks across the globe gained just 0.05 percent.
Britain’s FTSE 100 was up 0.6 percent, while the pan-European FTSEurofirst 300 index rose 0.05 percent.
Helping to support the gains, euro zone businesses ended the third quarter with much stronger growth than predicted, adding to evidence of the region’s newfound dynamism which has spurred strong inflows into European equities this year.
Oil prices were steady as investors waited to see whether major producers meeting in Vienna would back an extension to output cuts beyond March next year.
U.S. crude rose 0.16 percent to $50.63 per barrel and Brent was last at $56.31, up 0.39 percent on the day.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Additional reporting by Saqib Iqbal Ahmed in New York, Helen Reid in London and Sruthi Shankar in Bengaluru; Editing by Bernadette Baum)
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