Funda-FX wrap: Korean summit/Brexit/US CPI and FOMC noise
|- Trump/Kim summit: many uncertainties persist.
- Markets turn to central banks for direction.
- PM Theresa May avoided a major blow to her Brexit strategy.
From a fundamental perspective, the markets were mixed on expectations for the North Korea / U.S. historic summit. While the outcome is positive, the N.Korea risk was somewhat long in the tooth and probably hyped up too much previously. N.Korea has become conciliatory of late, so there was no surprise that they wanted to appease the United States and for that reason, the yen was not sold of vigorously, just a little soft as markets turned risk-on on the headlines that Kim agreed to ‘denuclearisation’ and thus making for an improved investment environment.
That said, many uncertainties persist and there are unknown implications for the security of such nations as S.Korea and Japan and indeed what the implications might be for China-US relations going forward. The summit between Cina and N.Korea may be of more importance in market terms at least - for, of course, it is promising that the Korean Peninsula will be rid of nuclear arms. Korean equities closed dead flat and markets were relatively calm awaiting greater scheduled risks sure to be market movers.
The key takeaways are:
- Kim promises ‘complete denuclearisation’ of North Korea.
- Trump invites Kim to White House summit.
- US commits to providing ‘security guarantees’ to Pyongyang.
- US to suspend military exercises on the Korean peninsula.
Meanwhile, eyes flipped over to Brexit risks and attention was reverted back to the central bank's meetings this week.
- FOMC Preview: hike on the table… too little too late?
In terms of Brexit, PM Theresa May avoided a major blow to her Brexit strategy on Tuesday. MPs rejected a plan that would have given parliament a veto on the final deal negotiated with Brussels. The House of Commons voted 324 to 298 to defeat an amendment to the EU Withdrawal Bill. That bill would have otherwise removed May's government’s power to decide to leave the bloc without any agreement. Talks with Brussels have stalled over the fraught issue of the Irish border, but both sides are hoping to agree on a deal by October in time for the Brexit date of March 29th, 2019.
As far as data went, the U.S CPI was up a tic to 2.8% y/y enough to keep UST yields and USD supported ahead of Wed’s FOMC:
- US May CPI MM, SA, 0.2%, vs 0.2% consensus and 0.2% previous
- US May CPI YY, NSA, 2.8%, vs 2.7% consensus and 2.5% previous
- US May Core CPI YY, NSA, 2.2%, vs 2.2% consensus and 2.1% previous
- US May Core CPI MM, SA, 0.2% vs 0.2% consensus and % previous
- US May CPI Index, NSA, 251.588, 251.557, 250.546 previous
- US May Core CPI Index, SA, 256.89, 256.45 previous
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