Well, the won is at four-month low against the dollar on Thursday because, well, because a mushroom cloud over Seoul isn’t an entirely far-fetched proposition.
“The won is under pressure as it appears North Korea is getting closer and closer to its nuclear program and that is causing tension and apprehension in the Korean peninsula,” Mingze Wu, a currency trader at INTL FCStone in Singapore said, stating the obvious.
As for what Washington plans to do about this situation, Trump (who is of course in Warsaw today) had the following to say:
- TRUMP: `I DON’T LIKE TO TALK’ ABOUT POSSIBLE PLANS ON KOREA
- TRUMP SAYS NORTH KOREA BEHAVING IN `VERY DANGEROUS’ MANNER
- TRUMP: U.S. CONSIDERING PRETTY SEVERE THINGS ON NORTH KOREA
- TRUMP: THAT DOESN’T MEAN WE’LL TAKE THAT ACTION ON NORTH KOREA
So that clears things up.
The yen was initially bid, but as is becoming customary, USDJPY rebounded as Europe got going.
One thing you should note is that yields on JGB 10s rose to 0.10% for the first time since February 15, suggesting the upward pressure on DM yields globally is starting to test the BoJ’s YCC:
That puts the focus squarely on BoJ buying including Friday’s purchase operation which the market will now watch to see if Kuroda caps yields.
Also note that as JGB yields drift higher, it makes yield differentials a two-way street again for USDJPY which, under YCC, pretty much just tracks UST yields because JGB 10Y yields can’t move.
“There has been a mechanical reaction to softer Treasury yields and consequent narrowing in the spreads between Treasuries and Japanese government bonds that tend to drag dollar-yen,” says Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore.
Meanwhile, in other geopolitical news, Erdogan doesn’t want you to forget that just because there are other more pressing matters to attend to, doesn’t mean he’s not still locked in an epic death match with the Kurds.
As a reminder, this crazy fucker has, at various times, bombed not only the PKK, but also the YPG across the border in Syria – that would be the very same YPG that is working with the US to retake Raqqa from ISIS.
“Turkey’s lira dropped for a fourth day against the dollar amid weakness across emerging-market currencies and a slew of brewing political risks that have pushed the currency to a seven-week low,” Bloomberg wrote overnight. On Wednesday, Erdogan said he’s ready to invade to “ward off” the Syrian Kurds – whatever that means.
That’s putting pressure on the lira which is now trading at its lowest to the dollar since May 19 after breaking through the 100-DMA yesterday. It’s down 3% this month, the most among major EM currencies.
Of course Ankara is also wound up in the Qatar spat. Turkish Deputy Prime Minister Veysi Kaynak granted an interview with Bloomberg on Thursday which is pretty funny. “There are militants with explosive vests crossing into Turkey as well as cross-border shooting by Kurdish PYD/YPG,” he swears, explaining why Erdogan may be forced (gun to his head) to invade Afrin. As a reminder, Afrin is in northwest Syria, near Aleppo, and one plausible reason why Erdogan may want to “de-Kurd” it (so to speak) is because were the YPG able to connect it with the territory they control east of the Euphrates, they’d pretty much control the entire border with Turkey.
The Deputy Prime Minister also said Turkey has a “sovereign right” to have troops in Qatar and suggested that the filthy rich sheikdom is not the “nest of terrorists” that Saudi Arabia claims it is. “Qatar is a country with a per capita GDP of $130,000. It is not possible to accept leaving it without food as part of an embargo,” he concluded.
Finally, oil got some measure of respite after a brutal day on Wednesday after API data showed crude and gasoline inventories both drop by more than by 5.5m bbl last week
“Gasoline demand has increased because of the U.S driving season and that’s a good sign for the market,” says Barnabas Gan, economist at Oversea-Chinese Banking Corp., in Singapore. “The rally is still extremely fragile and any signs which point to a higher supply environment into the second half could be a factor for oil prices to fall further.”
Global equities are lower thanks to geopolitical jitters and because Trump has escaped the US and is loose in Europe.
- Nikkei down 0.4% to 19,994.06
- Topix down 0.2% to 1,615.53
- Hang Seng Index down 0.2% to 25,465.22
- Shanghai Composite up 0.2% to 3,212.44
- Sensex up 0.6% to 31,445.23
- Australia S&P/ASX 200 down 0.08% to 5,758.76
- Kospi down 0.02% to 2,387.81
- FTSE 7322.38 -45.22 -0.61%
- DAX 12361.50 -92.18 -0.74%
- CAC 5125.60 -54.50 -1.05%
- IBEX 35 10429.20 -94.40 -0.90%