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Nuclear nerves wipe $1 trillion off world stocks

The damage inflicted on world stocks this week by the escalating war of words over North Korea topped $1 trillion yesterday, as investors again took cover in the yen, the Swiss franc, gold and government bonds.

With the tense mood pushing European shares down for a third day  and Wall Street set to fall again, global stocks were on course for their worst week since Donald Trump won November’s US presidential election.

Japanese markets were closed for a holiday but the yen powered on, hitting an eight-week high of 108.91 yen to the dollar, adding to its biggest weekly gain since May.

The yen tends to benefit during times of geopolitical or financial stress as Japan is the world’s biggest creditor nation and there is an assumption that Japanese investors there will repatriate funds should a crisis materialise.

The Swiss franc has benefited too. Two weeks ago it saw its biggest weakly fall against the euro since the start of 2015. This week has seen its biggest rise since June 2016.

And in bond markets, 10-year US Treasuries and Germany’s ultra-safe government bonds, known as Bunds, were trading at their highest prices since June.

Many world stock markets have hit record or multi-year highs in recent weeks, leaving them vulnerable to a sell-off, and the tensions over North Korea have proved the trigger.

The CBOE Volatility Index, the most widely followed barometer of expected near-term US stock market volatility, hit its highest mark since November 8, when Mr Trump was elected President of the US.

The Chinese volatility gauge jumped by the most since January 2016, to its highest level in more than seven months. The euro zone’s version is at its highest since April, when France’s election was rattling the region.

The market’s backstop safety asset, gold, edged up to its latest two-month high of $1,288 an ounce. It soared over two per cent in the previous two sessions, and is set for a weekly gain of 2.25 per cent.

Crude futures, meanwhile, extended losses on fears of slowing demand and lingering concerns over global oversupply.

US crude was down 0.9 per cent at $48.16 per barrel, on track for a weekly loss of 2.9 per cent.

Global benchmark Brent also fell 0.9 per cent to $51.44, after Thursday’s 1.5 per cent drop.

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