North Korea US nuclear test tensions heat up, triggering a wave of market turmoil. Meanwhile, all the major markets are closed today due to Good Friday.
14 April, XTB – Due to the Good Friday, equities and commodity exchanges are also shut. We are left with fx, but given that there is a limited number of active market participants we also do not expect there to be happen much.
Few investors and markets to discount geopolitics
Which is not to say that the world has become a quiet place now. The US bombing Afghanistan yesterday, the celebrations in North Korea to take place tomorrow (which usually are a display of military might), Syria, the North Korea US nuclear test tensions. The geopolitical heat map has not changed, but there is simply only few places today where the developments could be discounted.
One of such places is USDJPY. The demand for the Japanese yen usually rises when there is a tension on the markets and this is also the case this morning.
Daily gains of major currencies so far today; scarce liquidity, but the risk-off pattern can be clearly seen with JPY in the lead and high-yielding Antipodean currencies at the bottom of the table; source: Bloomberg
The pair has broken below 109 an hour ago and is now trying to confirm this round-figure level as a support-turned-into-resistance.
USDJPY is one of the few gauges of risk aversion traded today, it shows that the negative momentum is still present; source: xStation5
North Korea US nuclear test tensions
North Korean vice foreign minister was interview by Associated Press agency with the following headlines coming earlier in the morning:
- N.Korea won’t keep its arms crossed in face of a US strike
- Trump is ’making trouble’ with his aggressive tweets (referring to Trump’s ’we will solve the NK problem with or without China’ 3 days ago and a tweet from yesterday about confidence China will properly deal with NK – ’if they are unable to do so, the US with its allies will’
- the situation on Korean Peninsula is now a ’vicious circle’
- N.Korea will conduct the next nuclear test when the headquarters sees fit.
- ’we will go to war’ if the US chooses to provoke
Bloomberg reports a quick reaction from the White House, citing one of the foreign policy aides speaking under anonymity that vice president Mike Pence who soon pays visit to Asia will be discussing military options vs. N.Korea, will also discuss sanctions if the topic is raised (Trump has highlighted recently that China banned imports of NK coal, the US might expect S.Korea to also tighten the economic grip on the neighbor now). The person also admitted that the US anticipate possible missile or nuclear test by NK tomorrow due to the national holiday that usually includes military accents.
The vice president’s trip starts this weekend and will last 10 days, and will include South Korea (starting on Sunday – so a day after the day when NK could stage a military provocation) and Japan.
Actually, the situation is more complicated. S.Korea has recently seen its president impeached and the candidates to replace him vary in their approach to US military aid. Pence could promote deployment of a US missile defense system in the country (Thaad) which is one of the issues in the S.Korean presidential campaign, as a big part of the society wants only peaceful measures and incentives in relations with N.Korea.
China already took retaliatory action in March against S.Korea for the likely acceptance of the US missile system. Chinese travel agencies were ordered to stop selling holiday packages to SK and four SK superstores had their Chinese business licenses suspended.
South Korea is on the receiving end of this geopolitical stress as it could take damage in case of military action against NK even if it tries to stay neutral.
KOSPI, the South Korean main equity index has just ended the session continuing to trend lower; while its bullish trend only stepped up the pace in December 2016 the index has already corrected close to the Apr-2015 peak so there could be plenty of downside potential if the weekend brings more geopolitical uncertainty on the Peninsula; source: xStation5
Market anxiety is often vented through EURSEK moving up, albeit the pair is usually sensitive to economic risks (due to Sweden being an economy highly dependent on global trade), not geopolitics, but with few options for investors to discount the risk-off EURSEK could also see some moves today, with a move to the previous upward trendline looking like a possibility; source: xStation5
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