North Korea, Fed nerves stifle investors

World stocks and the euro fell for a fourth day on Tuesday, as investors who had piled into both all year took a step back as the list of global uncertainties began to lengthen again.

They included a new low in U.S. and North Korean relations, a jolt to the right in German politics, rising oil prices and falling tech stocks and the prospect of more guidance later from the Federal Reserve on its next moves.

The single currency fell back under $1.18, still feeling the effects of Sunday's bruising German election win for Angela Merkel that had given it its worst day of the year.

The yen, which traditionally performs strongly in jittery markets, meanwhile faded, having gone as high as 111.550 to the dollar, and gold also dropped back from a one-week high.

That came after North Korea's foreign minister said a tweet by U.S. President Donald Trump that its leader Kim Jong Un might not be around for too much longer, amounted to a declaration of war.

Support for Chancellor Merkel's conservatives, which won the election, unexpectedly slumped to its lowest level since 1949.

Yet again though, the bond market's reaction to the latest escalation in tension between North Korea and the U.S. proved short-lived.

Yields on U.S. Treasuries and German Bunds fell to a day's low follow North Korean Foreign Minister's Ri Yong Ho comments on Trump's tweet. Both traded back up on Tuesday in what analysts say reflects a widespread belief that diplomacy will prevail. Most other euro zone bond yields were also a touch higher.

A speech from Fed chair Janet Yellen, due at 19:45 and titled "prospects for growth: reassessing the fundamentals", was also coming into focus.

The dollar was climbing and investors will be parsing her words, and those of other Fed officials, for clues on whether the U.S. central bank will stick to plans to raise interest rates again in December.

According to CME's FedWatch tool, money markets point to a 70 percent chance of a hike in December but only a 20 percent chance of a further hike in March 2018.

Source: Bloomberg Pro Terminal

Junior Trader Stefan Panteleev

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