‘Geopolitical Risks Won’t Go Away’: North Korea’s Latest Missile Launch Tests Market’s Resilience

“USDKRW will likely rise to 1,140 level after North Korea’s latest missile launch though the overall impact won’t be too extreme considering the situation inside the U.S.,” An Young-jin, an economist at SK Securities said this evening, summing up what appears to be the consensus view regarding North Korea’s latest provocation that saw Kim launch another missile over Japanese territory.

To be sure, everyone knew this was coming. Indeed, KCNA tipped it on Thursday morning in a hilariously hyperbolic (even by Pyongyang’s standards) series of threats that included this miracle of bombast:

Japan is no longer needed to exist near us. The four islands of the archipelago should be sunken into the sea by the nuclear bomb of Juche.

So I suppose anything short of “sinking” Japan with an H-bomb is a bit of a “disappointment.”

Still, everyone’s favorite hermit kingdom is quite clearly determined to push the envelope as far as it can be pushed short of forcing the Chinese to acquiesce to an oil embargo, an eventuality which would spell the beginning of the end for a family-run dictatorship that’s lorded it over the North for seven decades.

Friday’s projectile was apparently of the Hwasong-12 variety as there was no separation, Japanese local broadcaster TV Asahi said on Twitter, citing an unidentified Japanese defense ministry official. Japan Chief Cabinet Minister Yoshihide Suga said Tokyo was still evaluating the missile which flew 3,700km. PM Abe says Japan was “completely aware” of the missile’s trajectory from the time it was launched.

“The North Korea missile launch is unfavorable to the equity market, but the yen has retreated after it strengthened to react to the launch, so stocks may not decline too much,” Nomura’s Masaaki Yamaguchi said, adding that “geopolitical risks won’t go away anytime soon, yet market participants have learned from the past events, so it’s possible reactions to a missile launch may get smaller.”

S&P futs held onto declines, but the dip was relatively shallow. Japanese equities erased early losses to trade positive.

“I wouldn’t necessarily say this is an escalation. The initial missile that went over northern Japan was an escalation, then obviously the nuclear test was an escalation: this is more of a continuance of provocation,” K2 Asset Management’s James Soutter opined. “It was still tested over Japan or a flight path they’ve done before, by the looks of it, so it’s a negative but it’s not an escalation.”

We would respectfully disagree with that assessment. Just because you didn’t aim your missiles at something new doesn’t mean firing missiles isn’t an “escalation.” That’s like saying that if I rob my neighbor once and he warns me not to do it again, it’s not an “escalation” if I rob him a second time as long as I break in through the same door.

In any event, let’s see how it plays out overnight. If nothing else, we’ll all get to chuckle at another iteration of the now ubiquitous “buy the missile launch dip” trade by the time the closing bell sounds on Wall Street.

Oh, and finally, here’s Tillerson:

NEW: Sec. Rex Tillerson says China and Russia must take "direct actions" to show intolerance of North Korea missile launches, in statement pic.twitter.com/BQZP6yZRYV

— NBC Politics (@NBCPolitics) September 15, 2017