- Risk on trade is back in town
- More economic sanctions on North Korea could trigger some serious reaction
- DAX and Euro relationship matters
The major reason that we are seeing the risk on trade coming back to life is mainly due to the measured approach by the US. The president of the US is too occupied with the shattering situation caused by Hurricane Harvey. The White House this time issued a statement to address the missile launch by North Korea. A more measured approach like in the good old days, rather than adding fuel to the fire.
However, it may be stretched to say or think that the environment is completely calm now. The latest statement by North Korea is, that the country is still determined to perform more missile tests, which is keeping this situation very much alive. The UN has strongly condemned the country’s launch of a missile over Japan and a reaction from the council is still to come. So the risk on trade may have a very short time to live.
More economic sanctions are very much on the cards for North Korea from the UN. However, that would be nothing new as the country is very much cut off from the outside world and there is only so much influence these sanctions could bring. China has also said that its patience is running very thin and the relationship could change its course soon if North Korea doesn’t change its stance. Nonetheless, the reality is that actions speak louder and unless we see some concrete reaction from the country, it is highly unlikely that anything would change.
Moving away from North Korea, the DAX index is feeling the pain of the stronger euro. The country’s export would have an adverse impact if the currency remains strong, and this strength in the currency has pushed the index below its 200 day MA. If we don’t break above this moving average, the selling pressure could become intense and it also means the Euro could continue to become stronger.
Hurricane Harvey is going to impact the US economy. The Fed is going to struggle with any more interest rate hike because the results of the hurricane are looking catastrophic. Perhaps this Friday’s USNFP would not have much influence, but we do expect the upcoming numbers for the next few months to show an increase in the unemployment claims. The labour market was the crown jewel for the Fed and if this starts to melt down, then we would be in trouble. Later today we have the US ADP and the revisions to the US Q2 GDP.
