Is a protectionist bombshell the bigger threat?
- North Korea's latest nuclear test was declared to be "hostile and dangerous" by US President Trump. The phrasing is a little less poetic than "fire and fury". Media reports also suggest that Trump is contemplated terminating the US-South Korea trade deal. Economics pays a lot of attention to signaling effects. That might be relevant here.
- The Korean won remains within recent ranges. Asian equities moved little. Humans are genetically programed to be optimistic, and rarely price extreme tail risks. Trump's threats of broader trade sanctions, coupled with earlier reports of enthusiasm for tariffs against China, make a protectionist response the bigger market threat.
- With Americans off marking the national inability to spell "labour" correctly, the focus is on Europe. This week's ECB meeting looms over markets. A clear outline of quantitative policy tapering is unlikely just yet. Markets will look for currency comments as well (silence on this being just as potent as a comment).
- Eurozone producer price inflation is due – a superior measure of pricing power by companies than is consumer price inflation. Most companies sell to other companies, not to consumers.