Impact of India-Pakistan tensions spreads from Asia to Europe

LONDON: Global stocks traded lower on Wednesday after fresh hostilities between India and Pakistan led Asian assets to slip and investors sought "safe havens" such as the yen and Swiss franc.

The pan-European STOXX 600 was down 0.5 percent with most regional indexes in the red, while U.S. stock futures for the S&P 500 and the Nasdaq were both down 0.2 percent ahead of the U.S. market open.

India and Pakistan both said they shot down each other's fighter jets on Wednesday, a day after Indian warplanes struck inside Pakistan for the first time since a 1971 war, prompting world powers to urge restraint.

India's and Pakistan's bonds and currencies fell and MSCI's broadest index of Asia-Pacific shares outside Japan  was down 0.13 percent as the threat of conflict between the nuclear-armed neighbours grew.

"This adds another layer of risks for investors", said Charles St-Arnaud, a strategist at Lombard Odier.

Markets were also watching the U.S.-North Korean summit, which begins in Hanoi later.

U.S. President Donald Trump will meet Kim Jong Un for a second summit, with the United States pushing North Korea's leader to dismantle its nuclear weapons programme.

BULLISH MOOD SOURS

The heightened geopolitical risks helped assets considered safer than stocks, such as the Japanese yen or the Swiss franc, which gained against the dollar.

"The yen is the pick of the major currencies as tensions flare between India and Pakistan and as the bullish global risk mood sours," said Societe Generale strategist Kit Juckes, though he noted the market moves remained limited for now.

The dollar itself hovered around three-week lows after Federal Reserve Chairman Jerome Powell reiterated on Tuesday the Fed had shifted to a more "patient" policy approach regarding changes to interest rates.

"We didn't learn much new," St-Arnaud said, adding that the new dovish stance of U.S. monetary policy had not weakened the dollar much, notably against the euro.

Also in the currency market, the British pound continued to rise after Prime Minister Theresa May offered lawmakers a chance to vote on delaying Brexit.

Sterling last traded at $1.3308, levels not seen since July 2018.

The export-heavy FTSE 100 which typically suffers from a higher pound lagged the broader market and lost 0.8 percent.

There were gains in Africa where Nigeria's dollar-denominated government bonds rallied to 5 -7 month highs after confirmation President Muhammadu Buhari had won a second term at the helm of Africa's largest economy and top oil producer.

The country's longer-dated bonds were up as much as 1.2 cents in the dollar to extend a more than 10 cents rally since the start of the year.

In commodities markets, oil prices rose after a report that U.S. crude inventories had declined and as producer club OPEC seemed to stick to its supply cuts despite pressure from U.S. President Donald Trump.

International Brent crude futures were at $66.20 per barrel, up a dollar or 1.55 percent from their last close.

Gold held steady, consolidating in a tight range, with the U.S. Federal Reserve's dovish stance on monetary policy offering limited support, while palladium stayed above the key $1,550 level and not far from its record high.