Article / 09 September 2016 at 7:00 GMT

Morning Markets: S Korean index slides after nuclear test

Former managing editor, / Saxo Bank



  • European debtor country meeting (1215 GMT)
  • Eurogroup meeting (1230 GMT)

Never to be knowingly outdone, the North Koreans carried out a fifth nuclear test overnight, earned the ire of the globe including a sharply-worded rebuke from China, and sent South Korea's Kospi index down 1.3%.

The detonation triggering a 5.0-magnitude earthquake is its second this year. Widespread condemnation followed from Beijing, Seoul and the International Atomic Energy which labeled it a "deeply troubling and regrettable act" as North Korea ostensibly moves closer towards the development of true nuclear capability.

South Korean officials meanwhile have pledged to stabilise markets if necessary in the wake of the latest test.

It's not often that European Central Bank president Mario Draghi sees his limelight stolen but the headlines were already relatively meagre out of Thursday's meeting which left the benchmark interest rate at zero and the deposit rate for banks at minus 0.4%. EURUSD spiked to 1.1325 in the aftermath but the rally proved shortlived pulling the pair back into a 1.1250-13 zone.

Asian markets meanwhile slid (in part due to poor China CPI and PPI data)  with the MSCI Asia Pacific Index down 0.7% as the ECB played down the need for further stimulus. The Nikkei nevertheless managed to shift into positive territory as the yen toed and froed against dollar.

The prospects of a move on rates by the Federal Reserve this month edged higher to 28%. Speculation will also continue over what the Bank of Japan will do on September 21.

Oil was boosted overnight after the EIA reported a sharp  2 million barrels/day drop to help WTI power past the key $46.50/barrel area and come within touching distance of $48/b. Brent was also coiled just beneath $50/b ahead of the European open.

Finally Nintendo added some $4.5 billion in value as it continues to ride a Super Mario wave (not the other Mario) to build on the Pokemon Go mania that helped it double in value in July. The share price continues to hold above the 27,600 mark having initially spiked beyond 28,000 after the Apple launch of its iPhone 7 Wednesday including the news it would feature the game. The share price was at around the 24,500 mark prior to Apple's unveiling. 

The excitement is likely to subside soon as pointed out by Saxo Bank equity chief Peter Garnry Thursday. Don't get caught out.

Market signals

Asian session

  • The ECB failure to make any policy moves dragged on some markets in Asia
  • Japan's Nikkei 225 recovered from early falls; it was up 0.17% to 16,987.98 at 0448 GMT
  • China's Shanghai Composite edged higher; it was up 0.03% to 3,096.84 at 0505 GMT
  • China's CPI rose by just 1.3% in August from a year ago; it was 1.8% in July
  • In August, China's Producer Price Index fell 0.8%, less than expected decline
  • The figure raised expectations that overcapacity in Chinese manufacturing is fading
  • South Korea's Kospi Composite was down 1.49% to 2,033.08 at 0501 GMT
  • Hong Kong's Hang Seng made strong gains; it was up 0.97% to 24,150.83 at 0507 GMT
  • India's S&P BSE Sensex was down 0.81% to 28,811.32 at 0509 GMT
  • Australia's S&P/ASX200 headed lower; it was down 0.85% to 5,340.20 at 0505 GMT
  • Despite the S&P/ASX200 fall, rising oil price gave the ASX-listed energy sector a lift
  • Australia's monthly home loans fell 4.2% in August; a 1.3% drop was expected

Forex ahead
  • The US dollar lost ground against the yen; it was worth ¥102.1165 at 0511 GMT
  • AUDUSD hit a three-week high overnight, before losing ground
  • The Australian dollar was worth 0.7648 at 0511 GMT
  • Housing booms could bring parity between the AUD and NZD: Bloomberg

From the Floor

Washing its hands. "The ECB signalled that basically, it can't do anything more," says Hardy.

Oil's boon. "Imports slumped by 2 mil b/d, the equivalent of one supertanker a day, but there are likely to be sharp revisions next week," says Hansen.

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

Greek prime minister Alexis Tsipras will today meet with the leaders of six southern EU countries badly hurt by the euro crisis, with a view to forming an alliance, writes Juhani Huopainen.

Right call, ECB
FX traders hoping may feel frustrated at ECB inaction, but  sticking with a steady-as-she-goes course for monetary policy was the right move, says Max McKegg.

Tensions are running high on the Korean peninsula, after Pyongyang admitted carrying out a nuclear test; North Korea may face fresh sanctions following the move. Photo: iStock

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