Markets continue to ignore North Korea. The USD was soft last night:
Commodity currencies were strong:
Gold sold:
Brent too:
Base metals were mixed:
Big miners were hit:
EM stocks did OK:
And high yield:
US bonds were bought:
European spreads widened:
And stocks took off:
Rather stupidly. North Korea is escalating:
Yonhap reports that in addition to the CVN-70 Carl Vinson, which is expected to arrive off the South Korean coast on April 25, the CVN-76 Ronald Reagan – currently in home port in Yokosuka, Japan – and the CVN-68 Nimitz carrier group – currently undergoing final pre-deployment assessment, Composite Training Unit Exercise off Oregon – will enter the Sea of Japan next week. According to the senior government official. the US and South Korea are discussing joint drills, which will include the three aircraft carriers and other ships.
Peter Hartcher sums it nicely:
The failure of North Korea’s much-anticipated ballistic missile test on the weekend tells us three things.
First, that it is completely undeterred…Second, North Korea remains determined to become the planet’s ninth nuclear missile state as soon as possible…Third, that while this latest missile test failed, Kim’s scientists will have learnt from it.
…There are only a few ways that a nation can be prevented from going fully nuclear.
One is negotiation. This can work. The Iran agreement of 2015 is a case in point. Iran has dismantled part of its nuclear infrastructure in return for the easing of harsh UN sanctions. Its progress towards nuclear missiles has been halted.
Would this work with North Korea? Bill Clinton’s administration tried it. Pyongyang merely gamed the negotiations.
…Another is armed force. This can work, too. Israel bombed Iraq’s Osirak nuclear reactor in 1981 before it could become operational. This set back the Iraqi nuclear weapons program.
Would this work in North Korea? A military strike on North Korea’s nuclear facilities faces an insurmountable problem. It would likely provoke the very event that North Korea has spent 60 years preparing for. Pyongyang has massive arrays of artillery and missiles aimed just south of the border, at Seoul and the US bases nearby. They are kept in permanent readiness to launch.
…A third is the modern variation on armed force, cyber war. This can work too. The US and Israel attacked Iran’s underground uranium centrifuges using a computer virus, the Stuxnet worm. The limitation here is that it is only a temporary setback to a nuclear program.
…Finally, there is the guarantee of security under the protection of major nuclear power. This can work, too. The US has successfully prevented a nuclear arms race in Asia for 70 years by putting its allies under its protection, the so-called nuclear umbrella. A nuclear strike on Japan, South Korea or Australia would be answered by a strike by the US.
Could this work in North Korea’s case? It already has a defence treaty with China, a nuclear power. It is conceivable that Beijing could persuade Pyongyang to abandon its own nuclear plans and take shelter under a Chinese nuclear umbrella.
This leads to the inevitable destination for any really workable solution to the North Korean problem – China.
Which brings us to Gideon Rachman at the FT:
Many historians trace the outbreak of the Korean war to a speech given by Dean Acheson at the National Press Club in Washington in January 1950. The US secretary of state spoke about America’s “defence perimeter” in Asia — and suggested that Korea lay beyond the perimeter. In Pyongyang, the leader of North Korea, Kim Il Sung, took note of the clear implication that the US would not defend South Korea. Five months later his armies poured across the 38th parallel and invaded the South. But Kim had miscalculated. The US did fight. The Korean war cost hundreds of thousands of lives, led to direct fighting between US and Chinese forces — and has never formally ended. To this day, peace in Korea is maintained by an armistice rather than a formal peace treaty.
…The Chinese government is openly alarmed by events in North Korea and may pressurise Pyongyang much more heavily. It is also possible that the Kim regime is more intimidated than its outward swagger suggests and could yet freeze its nuclear programme. But while it is certainly conceivable that the Trump administration’s bellicose strategy could deliver, it is more likely that North Korea will not back down — and that the Trump strategy will therefore fail. In that case, the US president is faced with a dilemma. Does Mr Trump’s “very powerful armada” steam away from the Korean peninsula, with its mission unaccomplished? Can the administration present an intensification of economic sanctions, possibly in conjunction with China, as the very tough action that it has promised?
Mr Trump is capable of shameless switches in rhetoric and policy. So it is certainly possible that he will simply back down on North Korea, or will embrace the status quo as the dramatic change that he has been seeking all along.
However, it is also possible that Mr Trump has convinced himself that a first strike on North Korea is a workable option.
…But if Kim Jong Un has drawn the same conclusion — he may reach for the nuclear trigger first.
I have no idea where this is going, only that it is clearly getting worse, and markets ignoring it is bloody stupid!
