Risk aversion dominates the global financial markets as geopolitical tension in Korea Peninsula escalates to a tipping point. North Korea fired a missile over Japan to land in the Pacific Ocean. Japan condemned the act as "an unprecedented, serious and significant threat. US warned that "all options are on the table". Nikkei responded by closing down -0.45% at 19362.55. Major European indices are trading deep in red with FTSE down -1.1%, DAX down -1.7% and CAC down -1.3%. US futures also point to sharply lower open. Gold rides on the sentiment and extends this week’s rally, accelerating to as high as 1331.9 so far. In the currency markets, Dollar trades as the weakest ones, followed by commodity currencies and Sterling. Swiss Franc is leading the way up, followed by Yen.
US President Trump: All options are on the table
US President Donald Trump said in a statement that "the world has received North Korea’s latest message loud and clear: This regime has signaled its contempt for its neighbors, for all members of the United Nations, and for minimum standards of acceptable international behavior." And he warned that "threatening and destabilizing actions only increase the North Korean regime’s isolation in the region and among all nations of the world. All options are on the table."
Japan PMI Abe: US and Japan are "totally at one"
Japan Prime Minister Shinzo Abe said after a 40-minute phone call with Trump that the US and Japan "are totally at one" in the position on North Korea. Abe said he and Trump were in "total agreement" that a emergency meeting of the United Nations Security Council should be held. And Abe said that "President Trump expressed his strong commitment to defending Japan, saying he was 100 percent with Japan as an ally." Abe condemned earlier that "this reckless act of firing a missile over our nation is an unprecedented, serious and significant threat, one that seriously diminishes the peace and safety of the region, and as a result we have lodged a firm protest against North Korea."
China: "Tipping point approaching a crisis" but who to blame?
China urged retraint from all parties and warned that situation had reached "a tipping point approaching a crisis". China Foreign ministry spokeswoman Hua Chunying told a daily press briefing in Beijing: "Think hard about it, who do you think should take the blame, if China is urging all parties to calm down while one party holds constant military exercises … and the other is constantly launching missiles?"
EC Juncker: None of UK’s Brexit paper "satisfactory"
European Commission President Jean-Claude Juncker criticized that "none" of UK’s positions papers on Brexit is "satisfactory. He complained that "the UK government is hesitant in showing all its cards." Juncker also added that "there are still an enormous number of issues that need to be settled. Not only the border problems with Ireland and Northern Ireland, which is a very serious problem to which we have had no definitive response, but also the issue of European citizens living in the UK and UK citizens living on the continent."
Juncker also reiterated and emphasized that "we need to be crystal clear that there will be no negotiations, particular on trade between the UK and the EU, before all these issues, that is to say those under Article 50, are resolved. That is to say the divorce between the EU and the UK." A European Commission spokesperson later told reports in Brussels that "I will not go beyond what president Juncker said this morning. When the president speaks we never interpret or go beyond that."
EU Barnier urged UK to start "negotiating seriously"
Yesterday, EU chief negotiator Michel Barnier urged UK to begin "negotiating seriously" And Barnier emphasized "we need UK positions on all separation issues. This is necessary to make sufficient progress." And, "we need UK papers that are clear in order to have constructive negotiations and the sooner we remove the ambiguity, the sooner we will be in a position to discuss the future relationship and the transitional period."
US President Trump warned of pulling out from NAFTA
In other news, Trump stepped up his rhetorics on the relationships with Canada and Mexico this week. Trump tweeted that "we are in the NAFTA (worst trade deal ever made) renegotiation process with Mexico & Canada". And he told reporters that "I believe that you will probably have to at least start the termination process before a fair deal can be arrived at. In our opinion, the core of NAFTA renegotiation is to narrow US’ trade deficit. With US’ trade deficit with Canada on the fall, it would put harder pressure on Mexico in the negotiations.
The market reaction towards NAFTA renegotiation has been muted, overshadowed by other events including North Korean peninsula tensions, US debt ceiling, and central banks’ monetary policy outlook. Indeed, we do not expect to see material developments for the rest of the year. However, the parties, especially the US and Mexico, would be eager to complete a deal by mid-2018, ahead of and Mexican election in July and US mid-term election in November." More in Second Round of NAFTA Renegotiation to Begin…
On the data front
Canada IPPI dropped -1.5% mom in July, RMPI dropped -0.6% mom. French GDP grew 0.5% qoq in Q2. German Gfk consumer sentiment rose 0.1 to 10.9 in September. UK nationwide house price dropped -0.1% mom in August. Japan unemployment rate was unchanged at 2.8% in July, household spending dropped -0.2% yoy.
*Quick update: US Case Shiller 20 cities house price rose 5.7% yoy in Jun. Consumer confidence rose to 122.9 in August.
USD/CHF Mid-Day Outlook
Daily Pivots: (S1) 0.9526; (P) 0.9552; (R1) 0.9577; More….
USD/CHF’s decline accelerates to as low as 0.9427 so far today. The break of 0.9437 key support level suggests that whole down trend from 1.0342 is resuming. Intraday bias remains on the downside and current fall will now target 61.8% projection of 1.0099 to 0.9437 to 0.9772 at 0.9363. On the upside, above 0.9526 minor resistance will turn intraday bias neutral first. But outlook will remain bearish as long as 0.9772 resistance holds.
In the bigger picture, current development suggests that 0.9443 key support (2016 low) could be taken out firmly as down trend form 1.0342 extends. There are various interpretation of the price actions. But in any case, medium term outlook will stay bearish as long as 0.9772 resistance holds. Current down trend could extend to 38.2% retracement of 0.7065 (2011 low) to 1.0342 (2016 high) at 0.9090.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Forecast | Previous | Revised |
|---|---|---|---|---|---|---|
| 23:30 | JPY | Unemployment Rate Jul | 2.80% | 2.80% | 2.80% | |
| 23:30 | JPY | Household Spending Y/Y Jul | -0.20% | 0.70% | 2.30% | |
| 06:00 | GBP | Nationwide House Prices M/M Aug | -0.10% | 0.00% | 0.30% | 0.20% |
| 06:00 | EUR | German GfK Consumer Confidence Sep | 10.9 | 10.8 | 10.8 | |
| 06:45 | EUR | French GDP Q/Q Q2 P | 0.50% | 0.50% | 0.50% | |
| 12:30 | CAD | Industrial Product Price M/M Jul | -1.50% | -0.50% | -1.00% | -1.10% |
| 12:30 | CAD | Raw Materials Price Index M/M Jul | -0.60% | -0.30% | -3.70% | -3.60% |
| 13:00 | USD | S&P/Case-Shiller Composite-20 Y/Y Jun | 5.70% | 5.60% | 5.69% | |
| 14:00 | USD | Consumer Confidence Aug | 122.9 | 120.4 | 121.1 |
