Tensions on the Korean peninsula aren’t anything particular new to investors, there’s generally been a flare up every so often over the last few years that roils markets for a day or so, before everything settles down again.
Yesterday’s flare up felt a little different initially probably more so because of the inexperience of President Trump in the area of foreign policy, particularly given his tendency to conduct policy by way of tweet and press conference.
While markets in Asia and Europe finished sharply lower yesterday, US markets managed to reverse most of their losses, as Secretary of State Rex Tillerson went on a damage limitation exercise, stopping off in Guam on the way, as Japanese and South Korean officials tried to play down the spat.
Despite the rebound in US markets into the close the safe haven trade still enjoyed the upper hand yesterday with government bonds, gold and the Swiss franc outperforming while global stock markets all lost ground, though US markets did manage to walk back the worst part of the losses after the European close, with the S&P500 more or less finishing the session unchanged, closing 0.04% lower on the day.
The Japanese yen which traditionally tends to do well when investors move their cash towards safe haven plays didn’t do as well, not surprising considering that in the event of hostilities breaking out Japan would be on the front line.
Despite the rebound in the US, European markets still look set to open lower today, with Asia markets slipping back as investors continue to be wary given that the potential for a policy misstep still remains high, largely due to the unpredictability of both President Trump, as well as North Korea.
This caution may be well founded after North Korean officials went into more detail about a possible attack plan options for Guam, outlining the prospect of four ballistic missiles being fired simultaneously.
It’s an important day for UK data and the latest manufacturing and industrial production numbers for June, as well as the latest trade data from the (ONS) Office for National Statistics. It has been particularly notable this year that the data we’ve seen from the ONS has painted a vastly different picture of the state of the UK economy, when compared to a lot of the independent surveys we’ve got from the likes of the CBI and the Markit PMI numbers.
For all of this year these independent surveys have been much more optimistic and quite frankly better when it comes to reporting the improvement in order books in terms of surging export markets, as well as rising employment levels in the sector.
The ONS numbers on the other hand have been uniformly negative with only one positive month so far this year, in April which rather invites the question as whether the ONS numbers are even fit for purpose, as well as which numbers represent the more accurate picture of the UK economy.
Manufacturing production is expected to come in at 0% while industrial production is expected to rise 0.1%, an almost pitiful reflection of a lot of the recent survey data.
In June the trade balance is expected to show an £11bn deficit, a slight improvement on the £11.9bn deficit in May.
The latest NIESR GDP estimate for the UK is expected to show that the economy grew 0.3% for the three months to June.
We’ll also get to hear from the New York Fed President William Dudley later today and his thoughts ahead of what is likely to be some important CPI numbers tomorrow. Dudley has been one of the more hawkish members of the FOMC in recent months so if he continues along those lines the US dollar could well get a lift.
Yesterday’s quarterly unit labour cost data painted a pretty muted picture in terms of the costs of labour for US companies, coming in at 0.6%, sharply down from the previous quarter of 2.2%, though productivity did improve a little.
EURUSD – slid below the 1.1700 level yesterday after failing to overcome the 1.1830 area earlier this week. The risk remains for a retest of the 1.1610 level in the short term. We need a weekly close above the 200 week MA at 1.1795 to argue for a move towards 1.2000.
GBPUSD – found some support just above the 1.2930 area and found resistance at the 1.3030 area. A move above 1.3040 could retarget the 1.3100 area, while a break below 1.2920 targets trend line support at 1.2840.
EURGBP – the risk remains for a move towards the 0.8980 area in the short term with resistance at the 0.9050 area, despite this week’s earlier squeeze to the 0.9090 area. Support at the 0.8980 area needs to hold for the move towards 0.9300 to play out or risk a pull back to the 0.8870 area.
USDJPY – continues to remain under pressure while below the 110.80 level, after yesterday’s low at 109.55. We need to see a move back towards the 111.30 area to stabilise and shift the onus away from a test of 108.20, and towards a return to the 112.30 area.
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