Global markets are jittery as India-Pakistan tensions hit a near 50-year high

A trader talks on two phones during a bills auction in Madrid.A trader talks on two phones during a bills auction in Madrid.REUTERS/Andrea Comas

  • Global investors are jittery Wednesday as tensions between India and Pakistan continued to rise, with the upcoming summit between the US and North Korea providing further reason for caution.
  • Pakistani officials said Wednesday that the country had shot down two Indian jets and carried out airstrikes on the disputed Kashmir region, which is controlled by India.
  • Stocks in Asia had increased strongly, but pared their gains into the close, with Chinese stocks up around 0.4%. European stocks nursed losses in the first hour of trade.

Global investors are jittery Wednesday as tensions between India and Pakistan continued to rise, with the upcoming summit between the US and North Korea providing further reason for caution.

Indian warplanes struck inside Pakistan for the first time since a war in 1971. Pakistani officials said Wednesday that the country had shot down two Indian jets and carried out airstrikes on the disputed Kashmir region, which is controlled by India. Details are currently unclear, but it has been reported that Pakistan has captured one of the pilots of the Indian jets, which landed in Pakistani-controlled territory.

Both countries have ordered airstrikes over the last two days, which, according to a Reuters report, is the first time in history that two nuclear armed powers have done so.

The incidents between the two nuclear powers have helped create a nervy atmosphere in markets, with European stocks starting the day on the back foot, and Asian stocks paring gains seen earlier during their trading session.

Such jitters are not helped by the summit between US President Trump, and North Korean leader Kim Jong Un in Vietnam, which kicked off Wednesday with a "social dinner" between the two delegations.

"Traders will keep an eye on developments, but the intensity of the focus will be nothing like the first meeting which came following months of hot-headed comments from both sides," Jasper Lawler, head of research at London Capital Group said in an email Wednesday morning.

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On Tuesday, Federal Reserve Chair Jerome Powell reaffirmed that the central bank will be patient when it comes to further rate hikes in the US economy. He said there's "no rush" to raise rates in a "solid" but slowing economy.

"Traders remained un-enthused" by Powell's patient approach, Lawler wrote.

"Jay Powell delved into the conflicting signals from the economy that the Fed has been trying to decipher across recent months."

Here's the scoreboard as of around 9.10 a.m. GMT (4.10 a.m. ET):

  • Asian stocks saw minor gains on the day, with Chinese indexes generally ending trading around 0.4% to 0.6% higher. Stocks had been higher, but moderated into the close, partially thanks to the developments between Pakistan and India.
  • India's main index, the Nifty 50, was down around 0.4% as of 9.10 a.m. GMT, while Pakistan's stock exchange was closed for the day Wednesday.
  • In the first hour or so of trade in Europe, all major indexes were lower, with the Euro Stoxx 50 down exactly 0.5%, and Germany's DAX nursing a 0.6% loss.
  • US stocks look set to see minor losses at the open later in the day, with futures pointing to the S&P 500, Dow Jones, and Nasdaq all losing around 0.4%.
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