Korean tensions come closer to boiling point

Despite the apparent threat of nuclear annihilation (as some media sources would have you believe) markets were relatively calm and sanguine yesterday. The greenback remains stronger against both the euro and sterling although lingering selling pressure courtesy of the FBI investigation into Russia’s ties to Trump could keep a modest cap on further gains. If there are winners from the simmering tensions on the Korean peninsula, it’s the Japanese yen and Swiss franc – two tried and tested safe haven currencies.

While barbed and thorny communications aren’t rare between the two nations at this time of year (August marks the annual joint military drills held between the USA and South Korea), it seems to have taken a slightly nastier turn with tangible intelligence emerging that Pyongyang now has nuclear capabilities and will have a plan to strike Guam ready in the coming days. Whether this tension will last or ebb away as it has in recent years is anyone’s guess, but relations cannot be strained too much further before troops are mobilised and markets will really begin to take notice. Should relationships sour further, it’s only a hop, skip and jump away from businesses worldwide being forced to consider the ramifications for supply chains, insurance contracts and shipping routes. But we hope we won’t have to pursue that train of thought any further.

US producer prices unexpectedly slow

This morning’s producer-facing inflation numbers were a surprise – instead of accelerating and being a precursor to faster CPI, producer prices actually fell on the month and slowed to 1.9% on the year. The downward pressure seems pretty broad-based, with both services and goods prices slowing across July. The market will now wait to see if the pullback in PPI today spills over to consumer prices, which could prompt further delays in the Fed’s plan to tighten policy through rate hikes and balance sheet reduction.

The dollar’s slightly pulled back some of the overnight gains on the back of the soft inflation figures, but no real move can take place until tomorrow’s CPI numbers are out of the way. A speech from the Fed’s Dudley this morning could draw some attention should he comment on policy.

UK’s latest economic indicators mixed at best

June’s UK industrial & manufacturing production numbers came in mixed, with all gains in industrial output pretty much countered by a flat month for manufacturing. Sterling’s reaction was, as such, limited and serves as a reminder that the rebalanced, diversified business community that politicians have been promising for decades is yet to materialise. At the time of writing, GBP/USD still sits just above 1.30.

Have a great day.