Reports that North Korea carried out a successful test on their most powerful nuclear weapon, an advanced Hydrogen bomb, over the weekend has weighed on risk appetite this morning with the FTSE 100 lower by a little less than 20 points. The pound is also in the red, with a lower than expected construction PMI release having a negative impact on sterling.
North Korea ramp up military threat
There has been a marked increase in North Korean provocation in recent weeks with a series of missile tests being carried out in what is quite clearly a deliberate escalation of international tensions. The latest drill caused a 6.3 magnitude earthquake that shook North Korea following the detonation of the country’s strongest nuclear weapon which was almost 10 times more powerful than the previous tests. The reaction in markets has been typical of risk-off flows with Gold futures hitting their highest level of the year and European equities beginning the week on the back foot. It should be noted however, that the size of the moves aren’t that extreme and whilst North korea are clearly looking to push the boundaries there is some sense that markets are beginning to show a diminishing sensitivity to the developments in Pyongyang. A decline of approximately 20 points in the FTSE for instance is hardly consistent with the market pricing in a full-blown nuclear war.
Gold stocks receive a boost
The best performing blue-chips in London this morning are those sensitive to the price of Gold with Fresnillo (LON:FRES) and Randgold Resources (LON:RRS) both higher by around 2%. Fresnillo now trades at its highest level in 10 weeks whilst Randgold has extended to the upside after breaking out of a near 6-month period of consolidation last week to trade at prices not seen since last September. Tesco (LON:TSCO) has begun the week brightly and added to recent gains ahead of the start of a trial into 3 former directors and the role they may have played in the £263m accounting scandal back in 2014. The biggest losers at the time of writing are Micro Focus and Mondi (LON:MNDI) with both shedding a little more than 1% since the open.