Global markets are closed for the weekend, so we will need to wait until tomorrow evening to see how investors react to the latest back-and-forth between the North Korean government and President Donald Trump. In North Korea’s latest salvo in its war of words, a state-run newspaper declared in an editorial that the country’s Paektusan army is now “on standby to launch fire into its [the US’s] mainland, waiting for an order of final attack.”
The comments follow a Friday report from KBS World Radio, the official international broadcasting station of South Korea (which is owned by the Korean Broadcasting System), that “North Korean authorities have dispatched emergency standby orders to the leaders of the ruling Workers’ Party committees and civil defense units.”
Here’s more from Fox News:
“North Korea took its turn Saturday in the country’s escalating, back-and-fourth with President Trump, with the state-run newspaper saying leader Kim Jung Un’s revolutionary army is “capable of fighting any war the U.S. wants.”
The assertion was made in an editorial that also states the Paektusan army is now “on the standby to launch fire into its mainland, waiting for an order of final attack.”
The editorial also argues that the United States ‘finds itself in an ever worsening dilemma, being thrown into the grip of extreme security unrest by the DPRK. This is tragicomedy of its own making. … If the Trump administration does not want the American empire to meet its tragic doom in its tenure, they had better talk and act properly.’”
Late last week, in a response to domestic criticism about Trump’s bellicose commentary, the president said that his rhetoric concerning North Korea – particularly his now infamous promise to respond with “fire and fury and…power” if North Korean leader Kim Jong Un continues to threaten the US – may not have been “tough enough.”
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“During Trump’s phone conversation Friday with Xi, the Chinese leader also requested that the U.S. and North Korea tone down their recent rhetoric and avoid actions that could worsen tensions between the two nations, Chinese Central Television reported.
‘At present, the relevant parties must maintain restraint and avoid words and deeds that would exacerbate the tension on the Korean Peninsula,’ Xi was quoted as saying.”
As we noted last night, it doesn’t look like Xi was able to sweet-talk Trump into once again delaying an investigation into China’s trade practices that many expect will lead to an all-out trade war between the world’s two largest economies. China is North Korea’s only major benefactor, and is responsible for 90% of the country’s foreign trade. Trump’s decision comes despite an IMF warning last month that “inward-looking” policies could derail a global recovery that has so far been resilient to raising tensions over trade. We also have noted the tendency, throughout history, for trade wars to blossom into the real thing…
Indeed, it seems that relations between the two world powers are deteriorating once again even after Trump praised China for signing off on the latest round of UN Security Council sanctions against the North – which are expected to reduce North Korea’s exports by more than $1 billion.
But despite Xi’s repeated jawboning and half-hearted promises to act, China has so far been reluctant to take meaningful action to curb North Korea’s nuclear program. Now any effort would probably be too little, too late, as the US and Japan now believe the North has developed a nuclear warhead small enough to fit inside on of its ICBMs. This newfound capability could allow the North to deliver a nuclear payload to the US mainland – a fact that was not lost on global markets this week.
The escalating tensions between NK and the US – particularly Kim Jong Un’s threat to launch a missile at Guam, a US island territory in the Pacific – helped keep the S&P 500 below its 50DMA for the longest stretch since April…
…and the Chinese VIX to its highest level of the year.
On Monday, we will learn if US investors are sufficiently terrified to dump stocks…or if “buy-the-f**king-all-out-nuclear-war-dip becomes the mantra of the day.