Again, North Korea dictates the mood in Asia. The yen and the franc are growing, gold is also actively playing out losses this week; The dollar behaves ambiguously, growing only in some currency pairs. Shares and other risky assets are rapidly becoming cheaper.
Geopolitics solves everything
So everyone thought that Kim Jong-un silently swallowed Trump’s promise to wipe North Korea off the face of the earth, sounded on Tuesday evening during a speech at the UN General Assembly. It turns out – no. It was just that the North Korean leader needed time to think through the answer and prepare the text. Obviously, after weighing everything well, Kim Jong-un saw Trump’s threat as a direct declaration of war and promised to give a tough answer: “Since Trump, in the face of the whole world, went on to deny the very existence of our state and declared the war in the most brutal manner to destroy the DPRK, consider responding to the unprecedentedly harsh measures that were not there before. A crazy American old man, we will tame with fire, “- he said (quoted by TASS). In general, the speech of the leader of the DPRK abounded with unflattering epithets about Trump and his mental abilities. The statement was made several hours after the States announced the imposition of new sanctions on Pyongyang: punitive measures went beyond North Korea and will now also apply to all foreign financial institutions involved in trading with the DPRK.
According to the Foreign Minister of the Democratic People’s Republic of Korea, Lee Yong-ho, the hard answer is most likely to be the test of a hydrogen bomb in the Pacific, although he does not know for sure, as the final decision will be made by the head of state. In any case, the situation once again entered a phase of dangerous open confrontation. Today, investors will withdraw from risky assets and calm down only on Monday, provided that the DPRK does not conduct any tests.
Almost all Asian indexes rushed down, which is not surprising. The Taiwanese Taiex suffered the most, losing 1.1%. Hong Kong’s Hang Seng and South Korean Kospi fell 0.9 and 0.6%, respectively. Topix and Chinese indices of Shanghai and Shenzhen – by 0.5%. Only Australian S & P / ASX 200 went against the trend and grew by 0.3% – mainly due to shares of mining companies, which, in turn, showed positive dynamics due to the growth of gold prices. This is the rare case when escape from risks is beneficial.
The foreign exchange market forgot about FOMC and runs from risks together with the rest
The dollar stopped growing on Thursday afternoon, long before North Korea’s announcement, but today, its decline accelerated especially in pairs with the yen and the franc. It is quite obvious that the market’s attention has shifted from geopolitics to macroeconomics and, given the half-empty calendar, it is unlikely that anything will change in this plan until the end of the day.
The dollar / yen gained 0.5% in the morning and fully played yesterday’s losses. Moreover, the pair descended below the support level of 112.00 and tested the minimum in the area of 111.65 in the morning. Now the pair is trying to develop an upward correction, but the success of this event will depend on the actions of European players who have not yet managed to withdraw their money into safe assets. Today, during the day, demand for the yen is likely to remain, but without further escalation of the North Korean conflict, by the beginning of the next week the mood may again change. In addition, on Monday, Shinzo Abe can announce early elections – do not miss it. In the short term, a strong break in the support zone 112.00-90 will cause a drop to 111.50 and 111.11 (this is the minimum of the medium). Crosses with the yen are also falling within the framework of anti-risk sentiment.
Dollar / franc yesterday tested the highs in the area of 0.9748, and today again traded below 0.9700. The low-yielding franc, like the yen, is not in the best position from the fundamental point of view, so today’s correction against geopolitical factors will provide the bear with new convenient entry points for the sale of the Swiss currency. Whether they use new trade opportunities is another matter. The answer to it will depend on the general mood in the market and the speed of flight from risks. From a technical point of view, yesterday the key resistance in the area of 0.9775 seemed so close, but today it is again out of reach. The field of view now supports 0.9649 and 0.9590.
Euro prepares for elections in Germany
The euro / dollar recovered well yesterday, while the lower limit of the medium-range range in the area of 1.1880 again passed the strength test. Today in the morning the pair continues to grow and may well return to the 1.20 mark, having played all the losses incurred after the announcement of the FOMC decision. Mario Draghi, speaking in Frankfurt yesterday, refrained from comments on the monetary policy and did not give the market any hints about what to expect from the meeting on October 26. Thus, the dynamics of the euro was determined mainly by the mood of the dollar, but today the market is likely to be positioned before the elections that will be held in Germany this weekend. About who will get the power in one of the most influential countries of the Old World, we find out on Monday. The change of the political elite and the leadership of the country will play against the euro, however, judging by the results of the polls, the likelihood of such an outcome is not high and investors are in no hurry to put it into the price.
Oil: when the glass is half full
Oil decreases the second day, however, the movement does not go beyond correction after growth to months-long highs. Data on stocks in the US, published this week, did not provoke a collapse, but still became a fly in the ointment in a common barrel of honey with positive factors. This weekend in Vienna, the meeting of the OPEC monitoring committee will take place, which, apparently, will confirm the information about the unprecedented high rates of compliance with the terms of the agreement. Earlier, Kuwait’s Energy Minister Issam Al-Marzuk said that the Committee would not give recommendations on the extension of the treaty, but most likely this issue will still be discussed during the meeting. Recall that many countries have already expressed support for such a decision (Russia abstained), than improved the overall mood in the oil market. So far we see a lot of positive: the demand for oil is growing, production in the OPEC countries is falling, world reserves are also declining. In other words, as long as for investors this glass is half full, they will look for reasons for buying on recessions.