The war of words continues to heat up
I’m usually the first to reject sabre rattling, but there’s nothing wrong with being ready for anything.
Today, the Minister of Foreign affairs for North korea’s Ri Yong-Ho told journalists in New York that «Since the united States has declared war on our country, we will have every right to take counter-measures, including the right to shoot down u.s. strategic bombers, even when they are not inside of the border of the airspace of our country.»
Friday, the North Korean leader Kim Jong-issued a statement and called Donald Trump a «mentally deranged» and was convinced «that the path that I have chosen is correct and that he is the one that I have to follow to the latter.»
The minister of foreign affairs in New York, said Pyongyang could launch a nuclear missile test in response. «This could probably mean the strongest hydrogen bomb test over the Pacific Ocean. Concerning the measures to be taken, I don’t really know since this is what Kim Jong Un.»
This is not a promise to test the missile, but combine them with comments where he said Trump would «pay dearly» for the threats, and that North Korea «will consider seriously the exercise of the correspondent, the highest level of the hard-line counter-measure in history.»
Trump responded via Twitter.
A U.S. official quoted by the Reuters news agency has also stated that it would be a «game-changer» if the test has taken place, but that the united states was not giving the threat of «too much credibility» for the moment.
If they were any two other leaders in the world, the market would be in full panic for the moment, but because Kim and Trump have negotiated this kind of speech, it is discarded.
«There’s a certain amount of threat that is taken for granted when you do business with North Korea,» the official told Reuters.
There is no doubt that this is the way the markets feel also, but there is a question that we should ask: What if we’re wrong? If Kim tests a hydrogen bomb on the weekend?
Explosion of H-bombs is a fool’s gambit. I really do not think that the united states will launch a counter-attack but you never know.
Here’s how I think the markets will react. The problem is that it is if the markets are open at the same time. If it tests the bomb on the weekend, markets would be less panic is not a military response.
- Gold is a classic ‘buy’ on the bombs in the air. I expect $1400 in a straight shot +$100.
- South Korea — «sell everything». This would be a very bad day for the Kospi, at least 7-8% and the CDS spike
- I don’t care if the weapons are pointed at Japan. They nuked themselves to the Fukushima nuclear plant and the yen still rose; this would be the same thing this time. Easily close to 200 pips across the board.
- The dollar would be bid to share the yen and the swiss franc
- Commodity currencies lower on concerns about trade and the global growth
- There were great concerns about the US-China relationship and the Chinese assets would be drag
- US 10-year yields back down close to 2%