Cold War #2 – the beginning of the end?
Good morning Pyongyang!
A few strange developments have come out of North Korea this weekend…
And if they come to fruition, they could have some serious effects on the markets, specifically US indices and the dollar yen.
Kim Jong-un has said that he wants to speak with Trump about deeper cooperation with the USA and Trump specifically.
But the biggest thing for me coming out of the news from the communist state, was that Kim wants a US embassy in Pyongyang.
This is all very odd and abrupt, but really does signal a potential change in policy; this can only be good for international relations and more importantly, the subjugated people of North Korea.
What will be most interesting is how Trump reacts to this…
Friends at last?
Many have considered the move from Kim to be smart, signalling the fact that he wants to be treated as an equal on the world stage. With Trump’s brash nature and lack-of-tact, this may be Kim’s perfect opportunity to achieve this, since Trump would love anything that seems like a win (and really, this would be a major win for the Trump administration if he were to achieve this).
Demonstrably, Kim has been a major posturer, showing the world and its leaders North Korea’s military capability at almost every turn, most importantly their nuclear capability (embarrassingly for him, many test launches failed).
What makes this situation better for the world is that Kim is looking to denuclearise – a clear decrease in international relation, political and conflict risk.
If other variables are kept equal, this should show Yen and the Swiss Franc to be offered (sold) if traders consider the building of relations between North Korea and the wider world to be a good thing.
But as we know, markets aren’t that simple – over the next few months, we are going to have to discern which risks are greater/going to take over.
Is China’s credit bubble a greater risk than North Korea’s open-ness?
Is Trump’s apparent trade war a bigger risk than the above?
Or will Brexit regain ground as being a large risk for the pound and occupy traders’ attention more than all of those combined?
These are all things that we as traders must consider… and the professionals do this every single day, observing minute changes in the ‘political voice’, as they like to call it.
As we know, fundamentals drive the markets in the longer term. If they didn’t, price would move based on pump and dump dynamics, such as those seen in the small cap equities markets and crypto.
This is why we MUST pay attention.