Nervous investors turned to the safety of gold, government bonds and the yen on Tuesday as concerns mounted about possible U.S. military strikes in the Middle East and the Korean Peninsula. Signals from Washington that it was prepared to take further action against the Syrian government if it thought it was using chemical weapons was the main driver, with uncertainty about forthcoming elections in France also simmering. Gold hit its highest since November, emerging market stocks were on their worst run of the year so far, while the euro fell to a four-month low versus a broadly stronger Japanese yen.
“It’s a relatively modest reaction but there is a lot of geopolitical risk in global markets at the moment,” said TD Securities European head of currency strategy Ned Rumpeltin. “There is Syria the is more uncertainty about the U.S. economy after relatively weak jobs numbers and we have French elections coming up.”
The latest polls from France are providing another twist in the race for the presidency, with far-left candidate Jean-Luc Melenchon now making ground against the rest of the pack ahead of the first round of voting on April 23. This has raised the possibility that Melenchon could square off against far-right leader Marine Le Pen – both of whom are eurosceptics – in the election’s decisive second round in May.
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German Bunds yields dipped below 0.20 percent for the first time in more than five weeks while French yields rose to a one-week high of 0.96 percent leaving the gap between to two – a key gauge of investors’ concerns – at its biggest in six weeks. “After Britain’s Brexit referendum and the U.S. presidential election surprised markets in 2016, could this event do the same?,” Mark Burgess, global head of equities at Columbia Threadneedle in London, wrote in a note.
European stocks were also subdued and looked to be heading for a second day in the red as an early attempt at a move higher quickly fizzled. Tech stocks were the biggest sectoral losers as broker downgrades sent chipmaker Dialog Semiconductor and AMS tumbling 18 percent and 7.5 percent. Banking stocks also dropped with Spain’s Banco Popular down over 5 percent after the bank said that it was considering another capital hike and would consider a merger.
Gold was the main beneficiary of the cautious mood, with the precious metal up at its highest since November at $1,256 an ounce and advancing for the sixth day in the last eight. Oil retreated from five-week highs hit earlier in the session meanwhile, as concerns about rising U.S. shale production offset a shutdown at Libya’s largest oilfield over the weekend and the U.S. strikes against Syria that had supported prices.
Global benchmark Brent fell 10 cents to $55.89, breaking a six-session winning streak, while U.S. crude pulled back 14 cents to $52.95 a barrel, after rising for the previous five sessions.
By Marc Jones (Editing by Keith Weir)