In what looks like being a very busy and news-filled week in the markets, breaking news earlier today indicates that North Korea has indicated a willingness, at least in principle, to discuss denuclearization of the Korean peninsula in return for a guarantee of the regime’s survival. The announcement was made following a period of quiet rapprochement between North and South and could indicate a major geopolitical breakthrough is on its way. The market reacted immediately, with the USD/JPY currency pair spiking up by almost 40 pips after it had been falling for several hours. The reaction is not dramatic, and it is expected that the road towards any deal which might defuse recent tensions over Korea will be long. Stock futures had already gapped up from yesterday’s close well before the announcement.
I wrote on Sunday about how there was a growing suspicion, even in the absence of opinion polling during the final two weeks of the campaign, that the result of the Italian general election might tilt rightwards, and now the results are known this has been confirmed. Five Star received 32% and the left-wing coalition only 23%, with the remainder going to the center-right coalition, suggesting the new Parliament is going to be significantly more “Eurosceptic”. There has been a lot of media talk about the result potentially being very significant and sending “shockwaves through Brussels”, yet somehow it doesn’t seem to be bothering the market too much, as the Euro has been rising in value ever since the result became known! It just goes to show you should pay more attention to prices than to journalists. Although it is true that Italians have voted heavily for anti-establishment, anti-Euro parties, why would a net taker from the Eurozone such as Italy bite the hand that feeds it? There would need to be a clear alternative outside the Euro, and there is still not enough evidence that such a clear path is being presented by Italy’s winning parties. The market’s concern is likely to remain Italy paying its debts, not pulling out of the Euro, despite the country’s long-running economic troubles which are undoubtedly real and severe.