There’s never a dull moment in a world that’s lost its mind.
North Korea celebrated July 4 by launching what Pyongyang says was an intercontinental ballistic missile.
The projectile, fired from the country’s western coast at 9:39am local time, flew for about 40 minutes and crashed landed into Japan’s EEZ. According to an “important announcement” (that’s literally what Pyongyang called it), Kim Jong Un “personally guided the firing” of the ICBM they’re called “a Hwasong-14” which Kim claims “can hit anywhere in the world.”
Japan is obviously furious.
Chief Cabinet Secretary Yoshihide Suga protested to the North Koreans and Shinzo Abe, coming off a stinging political defeat over the weekend, “ordered to gather related information and analysis” – whatever that means.
Trump is incredulous.
North Korea has just launched another missile. Does this guy have anything better to do with his life? Hard to believe that South Korea…..
— Donald J. Trump (@realDonaldTrump) July 4, 2017
….and Japan will put up with this much longer. Perhaps China will put a heavy move on North Korea and end this nonsense once and for all!
— Donald J. Trump (@realDonaldTrump) July 4, 2017
It’s funny because one certainly imagines there’s been a time or two when Kim has asked the same question about Trump: “Does this guy have anything better to do with his time?”
As for what Trump means by “put a heavy move”, we can only speculate. What we do know is that should Beijing need advice on how to “move on” the North Koreans “like a bitch,” they can count on Trump for advice.
The yen rallied on safe-haven flows and hit a session high versus the dollar around the time Pyongyang made its “important announcement”:
“The dollar dropped by as much as 0.6% to 112.74, before paring losses and rising above the 113.00 handle,” Bloomberg notes, adding that “the move off the lows was supported by leveraged names fading a euro-yen drop near 128.00 support.”
Meanwhile, the RBA kept rates on hold as expected. Here are some quick highlights:
- Headline inflation returned to RBA’s 2%-3% target in 1Q for first time since 2014; core consumer prices that central bank closely monitors are still advancing at below-target pace
- June data showed strong employment gains and decline in jobless rate to 5.5%; yet first-quarter growth decelerated to 0.3 percent in the quarter, mainly due to weather impact
- House prices advanced by more than 2 percent in June in Sydney and Melbourne. The RBA is watching the impact of macro-prudential measures designed to cool lending
Apparently, the rhetoric wasn’t hawkish enough for markets which are now expecting aggressive rhetoric from central bankers after last week’s Draghi/Carney comments. The aussie fell as bids were hit to clear longs from leveraged accounts, traders said.
“The lack of a hawkish turn should disappoint the market and this is weighing on the Aussie,” Peter Dragicevich, currency strategist at Nomura Singapore said, adding that he “continues to think the RBA will lag other central banks given the slack that remains in the economy and subdued inflationary pressures.”
“The market had gotten ahead of itself,” says Richard Grace, chief currency strategist at Commonwealth Bank of Australia. “The RBA would also have known that AUD/USD would rally toward uncomfortable levels if they had appeared hawkish”
And then we got the Riksbank, which kept the repo rate unchanged at minus 0.50% as expected. The messaging was hawkish… or dovish… or both?
- Riksbank says the fact that inflation has recently been slightly higher than expected and that the risks of setbacks abroad are thought to have decreased makes it less likely than before that it will cut the repo rate in the near term.
- Says this does not rule out repo rate cuts in the period ahead
- Prepared to implement further easing if necessary to stabilize inflation and safeguard the inflation target
- All tools that Riksbank has described earlier can be used if needed
- Still says first rate increase not expected until middle of 2018, which is the same assessment as in April
- Purchases of government bonds will continue during 2H, as decided in April
- Important currency doesn’t appreciate too rapidly
So basically, they’re removing the easing bias but watching the currency and so, the krona fell:
“Riksbank only dipped toes a little into hawkish waters, unlike what we saw from other central banks,” Christin Tuxen, chief FX analyst at Danske Bank mused. “The hawkishness isn’t the catalyst that one could have expected to prompt SEK strength against euro, therefore isn’t a game changer for the currency.”
Got it. Hawkish with a twist of dovish FX warnings.
“The Riksbank removed easing bias as expected and we can see the light, a rate hike, at the end of the tunnel which is good news,” SEB’s Chief Economist Robert Bergqvist offered, on Twitter.
Global equity markets were under pressure as the world wonders whether Trump will decide to take matters into his own (small) hands and “put a heavy move” on Pyongyang.
Mercifully, Obama met with South Korean President Moon Jae In on Monday, so maybe there’s hope yet for averting nuclear war…