The Vix, Wall Street's so-called fear index, spiked last night as tensions between the US and North Korea continued to escalate.
The index jumped more than 40 per cent, its eighth-biggest spike ever, to above 16 points. That put it at its highest level since the US election in November, as investors piled into safe haven assets such as gold and bonds.
The moves followed comments by Donald Trump, who said last night he had not been "tough enough" when he threatened to unleash "fire and fury like the world has never seen" on North Korea.
This morning global stocks declined for the second day in a row, with the FTSE 100 falling 0.8 per cent to 7,327 points in early trading, while the Dax fell 0.2 per cent and the Cac 40 fell 0.6 per cent.
In Asia, the Nikkei was flat, while Hong Kong's Hang Seng fell 1.8 per cent and the Shanghai Composite finished 1.6 per cent lower.
"Love or loathe him, Trump isn’t one to back down from a confrontation so it's perhaps not a surprise that things have escalated," said Jasper Lawler, head of research at London Capital Group.
"North Korea responding with a threat to US territory after Trump warned [it] not to threaten the US was never going to go down well.
"We assume markets will move on if it remains purely a war of words but the sell-off looks durable. With earnings season almost over, worry over North Korea may have ignited a well-overdue period of greater market volatility," he said.