So the elephant in the room is clearly Donald Trump’s decision to fire FBI Director James Comey who is (wait, “was”) conducting an investigation into the administration’s ties to Moscow.
There’s also the imminent threat of another nuclear test from North Korea but, in a testament to how surreal the geopolitical picture has become, “nuclear war” has become something of a “known unknown.”
The possibility we’ll see a mushroom cloud on the Korean peninsula isn’t even enough to make CNN’s ever-present “BREAKING NEWS” footer these days. Not when the President of the United States is quite clearly looking to build an autocratic regime in Washington (turns out “drain the swamp” meant “install dictatorship” – who knew?)
USDKRW moved notably on the latest Pyongyang nuke headline Tuesday afternoon and should probably move higher from here Jeon Seung-ji, a currency analyst at Samsung Futures in Seoul wrote overnight, following South Korean elections, before adding that “expectations of fresh economic stimulus measures and easing political uncertainty from start of the new administration could provide some support.”
New president Moon Jae-in promised to unify the nation after nine years of conservative rule after receiving 41.08% of votes in Tuesday’s election.
As for the Kospi, well, “Moon’s victory is very good news,” Nomura’s Michael Na said in Bloomberg TV interview. Apparently not today though, as South Korean shares are off 1% while the yield on local bonds due in 2026 rose 6bps to 2.31%, the highest close in 2 months.
Meanwhile, things are looking more precarious by the day in China. Overnight, we got the latest PPI print and it missed, although there were some signs that we’re finally getting some pass through to CPI.
- CHINA APRIL PRODUCER PRICES RISE 6.4% Y/Y; EST. 6.7%
- CHINA APRIL CONSUMER PRICES RISE 1.2% Y/Y; EST. 1.1%
“PPI inflation decreased and we expect it to continue the downward trend in the next few months,” Goldman wrote, adding that “overall inflationary pressures seem mild [and] April activity growth may have weakened from the strong level in March, [which could prompt] policy makers to step back from the relatively aggressive monetary policy tightening, under the backdrop of mild inflationary pressures and weakening activity growth.”
The PPI miss is the latest in a string of bad data out of the country and it underscores the extent to which this may not be the time to try and rein in credit growth (read: speculation).
But as detailed here and elsewhere, Beijing has no choice, because the country’s shadow banking complex is out of control. So tighten they will and crack down they will, and that will continue to push yields higher (bonds lower), play havoc with commodities, and keep previously buoyant Chinese equities jittery:
Overnight, the PBoC drained CNY80b from the system, but did offer CNY47.6b worth of PSI. CNY 12-month NDFs fell to a seven-week low of 7.1242.
Elsewhere, the euro hit its lowest level against the pound since before the first round of the French elections as traders appeared to think that more BOE members could dissent on holding UK rates:
The dollar was looking to push lower, but stabilized – although Treasury yields dipped, likely on the back of the Comey news.
Also this is worth noting (from Bloomberg):
- Japan’s govt bond yields advance across the yield curve to one-month highs as Tokyo shares rise and hopes for the Fed’s rate hike push U.S. Treasury yields higher.
- BOJ Governor Haruhiko Kuroda acknowledged that the Bank of Japan’s bond holdings are currently growing at a pace of around 60 trillion yen ($527 billion) — well below the guideline in its policy statements.
Here’s a look across regional equities:
- Nikkei up 0.3% to 19,900.09
- Topix up 0.2% to 1,585.19
- Hang Seng Index up 0.5% to 25,015.42
- Shanghai Composite down 0.9% to 3,052.79
- Sensex up 0.8% to 30,179.51
- Australia S&P/ASX 200 up 0.6% to 5,875.44
- Kospi down 1% to 2,270.12
- FTSE 7365.32 23.11 0.31%
- DAX 12736.99 -12.13 -0.10%
- CAC 5392.07 -5.94 -0.11%
- IBEX 35 10985.40 -63.80 -0.58%