Kim ratchets up the rhetoric
Reading the BBC website this morning it is almost ridiculous to imagine that North Korean President Kim Jong-un can actually have said that he is considering a missile strike on Guam.
Kim is under severe pressure from China to rein in both his nuclear weapons programme and his threats to the US but continues to goad President Trump. Quite how this will play out is anyone’s guess but Kim and Trump are not the most statesmanlike or diplomatic characters to have their fingers in the trigger.
The currency market has reacted in typical fashion by restraining risk and buying the JPY. the dollar slipped below 110 but has subsequently recovered as the immediacy of the situation has receded somewhat.
This could be the silliest of the silly season stories but Kim is so unpredictable that he could easily be more than a “pantomime villain”. The US will eventually have to react with more than words but will need to ensure both the Chinese and UN agree.
German exports suffer from strong currency
It seems like no time since President Trump was warning Germany about being a currency manipulator and the Bundesbank was voicing concerns over the weak currency importing inflation.
Times have certainly changed! A close to 15% rise in the euro has driven inflation clouds away but brought the new issue of a slowdown in exports.
Germany reported trade data yesterday and has seen a 2.5% fall in exports in June. Imports also fell driven primarily by internal trade within the eurozone.
Economic developments within the eurozone continue to be part of a wider experiment. No one really knows or can accurately predict the paths of nineteen diverse economies with different drivers. There is a distinct line between the previously relatively low inflation economies like Germany, Belgium and the Netherlands and the high inflation countries like Spain, Italy and Greece. France sits somewhere in the middle moving from camp to camp as befits its variable economic performance.
The euro has corrected a little since touching 1.1910 last week but has strong support in its presumed goal of reaching 1.2000. Versus sterling, the single currency could reach parity sometime next year depending upon how Brexit develops but for now a more modest 0.9250 is the market’s goal.
Central bankers preparing for succession
ECB President Mario Draghi continues to walk a fine line between growth and inflation and has, so far, done a remarkable job. When his term comes to an end in October 2019 he is likely to be followed by a German. Having had Dutch, French and Italian Presidents the ECB will brace itself for a more inflation driven regime mirroring the Bundesbank.
Mark Carney the Bank of England Governor has said that he will leave his position in June 2019. There will be some concern about continuity since he hasn’t, yet, appointed a deputy following the resignation of Charlotte Hogg in March. Brexit will presumably have been completed and the UK will have entered the, much discussed but so far not agreed, transition period. It will be a time of major uncertainty so serious consideration will need to take place, although a general election in the intervening period is both a possibility and a concern.
Janet Yellen the Fed Chair is up for re-appointment in January. It is equally unclear whether she is prepared to continue as it is that she will be asked to. President Trump has flip flopped (not unusual) between praising and criticising the Fed and may want his own appointee who he can bend to his will. The job is made difficult by the theory of withdrawal of stimulus being demanded followed by calls for rate hikes to be suspended.
These three have been the architects of the emergence of G7 from the global crisis that enveloped their economies in 2008 and they will undoubtedly be hard acts to follow