While there’s no way to know, ahead of time, if “this time is different” in terms of whether risk assets will ultimately remain resilient in the face of another serious provocation by the child-king in Pyongyang, it’s safe to say that the commentary feels a bit more alarmist than usual.
And that makes sense, because after all, this time a missile actually flew over Japan and on top of that, this comes at a particularly delicate time for markets given the approaching debt ceiling debate, the specter of a U.S. government shutdown, and the possibility that the Fed is about to announce balance sheet normalization.
“The big question is reaction of Japanese, Americans, and South Koreans,” Mark Mobius told Bloomberg in a phone interview from Hong Kong, adding that he’s taking this “very seriously,” although he doesn’t see “much difference” in current situation on the Korean peninsula in comparison to previous events.
Same story with Jim Rogers – worried about the reaction from the world more than the North Koreans. “I’m worried about Donald Trump, what he might do,” Rogers said on Monday. “I’m not buying anything. I’m doing absolutely nothing. I don’t see this is a very significant development.”
As far as markets go U.S. futs are under pressure and gold is up:
The yen is still bid:
The won of course is under pressure:
European shares are down sharply:
Yields are diving, at one point pushing below 2.10:
As noted last night, it shouldn’t be lost on you that there’s something ironic about investors seeking safety in a currency printed by the very country that’s under threat. Here’s some useful color on that from Bloomberg’s Wes Goodman:
Gold is overtaking the yen as a favored haven,and Tuesday’s missile launch by North Korea will only reinforce that trend. For years, investors questioned why Japan attracts money during times of unrest since the economy has been struggling for decades. The answer usually is the Japanese have lots of cash abroad, and they’ll bring that money home during times of crisis. That’s still the case, and the yen is rallying now. But gold is gaining a bit more. The yellow metal has beaten the yen 67% of the time over the past three months on days when both advanced. Before that in 2017 gold only beat the currency half of the time.
Additionally, Raytheon, Lockheed Martin, General Dynamics, and Boeing are all indicated higher in the pre-market.
Below, find a summary of additional analyst commentary as compiled by Bloomberg…
Via Bloomberg
- K2 Asset Management (James Soutter, fund manager in Melbourne)
- It’s just another negative for markets to be wary of at this point, in many ways it’s impossible to price into markets
- “We are holding high cash levels due to a number of factors including global inflation, growth expectations coming down, bond yields in the U.S. rolling over and geopolitical tensions”
- With equities getting towards the top of valuation ranges, having cash protection is probably not a bad idea
- Mizuho Bank (Kenta Tadaide, market economist in Tokyo)
- Investors and traders have become further cautious about the tension on the Korean Peninsula, weighing on Asia’s emerging-market assets from stocks to currencies
- “Personally, I don’t think we will see an immediate attack against North Korea and the tension will probably ease like previous cases, but the sense of crisis has definitely heightened this time”
- Bank of Singapore (Sim Moh Siong, currency strategist in Singapore)
- The latest missile test represents a “a step-up in terms of the level of provocation” and markets are watching what will follow
- Jitters will intensify should there be further provocation but if Tuesday’s test is “followed by radio silence, then the market could settle down somewhat.”
- “The neighborhood impact would mean that Korean won would be the key casualty here, followed by North Asian currencies and followed by the entire Asian space”
- Busan Bank (Kim Dae Hun, currency trader in Seoul)
- The impact of North Korea’s latest missile launch on financial markets will depend on the U.S. reaction
- Launch is in violation of UN resolutions, and therefore is likely have a larger impact on markets than the one that took place on Aug. 26; fact the missile flew over Japan will increase concern it could also reach Guam
- Samsung Securities (You Seung-Min, chief strategist in Seoul)
- North Korea’s missile launch will not have much impact on South Korea markets as investors now have a “high tolerance” to a crisis related to Pyongyang
- If North Korea launched an ICBM or conducted a 6th nuclear test, it would have been a grave issue; North Korea appears to raise tensions before its anniversary of the foundation of the regime
- “We were at the brink of a war previously” when tensions were high on Trump’s comment, but the situation is not that grave this time
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Finally, don’t forget: if you’re gonna go – go hard….
