Markets use Kim Jong Un to get what they want
The North Korean leader once again decided to remind of his military achievements to international colleagues, launching a medium-range ballistic missile on Tuesday night. Flying over the Japanese sky the projectile fell into the Pacific Ocean at 760 miles from the island of Hokkaido. Solo pursuit of their nuclear ambitions, despite the sanctions of the UN Security Council, which slashed 1/3 of North Korean export, showed the vainness of economic and political pressure on the regime of Kim Jong-un. The South Korean neighbor reacted with a demonstration of strength, while investors are waiting for the reaction of the United States, keep an eye on Trump's Twitter.
The situation on the Korean peninsula will remain the dominant news factor this week, curbing investors' appetite for risk. The escalation of tension, although it looks like a sound, speculative-friendly continuation, the negotiating table seems to be a more likely outcome than full-scale hostilities, as previously spoken by a number of American, Japanese and South Korean officials. Moreover, China will do its utmost to promote a peaceful settlement, since North Korea is a "buffer zone" that constrains the US presence in the region.
The threat of a military confrontation on the Korean peninsula has provoked a flight from risks on the world market. Stock markets in Europe and Asia went deep into the red zone, US and European bonds accelerated growth. Gold, yen and franc and other precious metals jumped more than 1 percent due to increased demand for defense assets. During the London trading, the sentiments has been relatively stabilized .
The dollar was the least attractive asset today, but the fundamental picture of the US economy does not share the pessimism of investors. Macrostatistics does not give alarm signals, the labor market is at pre-crisis highs, the American consumer is comparatively happy. The matter of the third rate increase remains open. Probably the dollar became a victim of speculative pressure and the crisis on the Korean peninsula served as only a catalyst for general panic. In the dynamics of EURUSD, euro purchases are primarily connected with rumors about the QE folding at the September meeting of the ECB. Without waiting for Draghi, the market has already convinced itself of this. Also, given that ECB officials are concerned about the strengthening of the euro and the risks of “overshooting", the breakthrough of 1.20 level is approaching the moment when the regulator will still make an intervention. Bullish dynamics above 1.20 can be quite deceptive, given that 1.2160 has a level of 50% correction since the announcement of the ECB's QE. Consumer confidence report is due today later, which may offer some support to the dollar.
Arthur Idiatulin, Tickmill analyst
The situation on the Korean peninsula will remain the dominant news factor this week, curbing investors' appetite for risk. The escalation of tension, although it looks like a sound, speculative-friendly continuation, the negotiating table seems to be a more likely outcome than full-scale hostilities, as previously spoken by a number of American, Japanese and South Korean officials. Moreover, China will do its utmost to promote a peaceful settlement, since North Korea is a "buffer zone" that constrains the US presence in the region.
The threat of a military confrontation on the Korean peninsula has provoked a flight from risks on the world market. Stock markets in Europe and Asia went deep into the red zone, US and European bonds accelerated growth. Gold, yen and franc and other precious metals jumped more than 1 percent due to increased demand for defense assets. During the London trading, the sentiments has been relatively stabilized .
The dollar was the least attractive asset today, but the fundamental picture of the US economy does not share the pessimism of investors. Macrostatistics does not give alarm signals, the labor market is at pre-crisis highs, the American consumer is comparatively happy. The matter of the third rate increase remains open. Probably the dollar became a victim of speculative pressure and the crisis on the Korean peninsula served as only a catalyst for general panic. In the dynamics of EURUSD, euro purchases are primarily connected with rumors about the QE folding at the September meeting of the ECB. Without waiting for Draghi, the market has already convinced itself of this. Also, given that ECB officials are concerned about the strengthening of the euro and the risks of “overshooting", the breakthrough of 1.20 level is approaching the moment when the regulator will still make an intervention. Bullish dynamics above 1.20 can be quite deceptive, given that 1.2160 has a level of 50% correction since the announcement of the ECB's QE. Consumer confidence report is due today later, which may offer some support to the dollar.
Arthur Idiatulin, Tickmill analyst
This analysis is provided as general market commentary and does not constitute investment advice. Past performance is not indicative of future results
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