Stocks on edge, dollar rises as Trump, Kim raise hopes at landmark summit

SYDNEY (Reuters) – The dollar jumped to a 3-week top on Tuesday while stock markets in Asia ticked higher as a landmark U.S.-North Korea summit in Singapore raised hopes the bitter foes might be able to strike a deal to end a nuclear stand-off on the Korean peninsula.

An employee of a foreign exchange trading company works near monitors broadcasting TV news reporting the summit between the U.S. and North Korea (C top) and the Japanese yen’s exchange rate against the U.S. dollar (top L) in Tokyo, Japan, June 12, 2018. REUTERS/Issei Kato

U.S. President Donald Trump said he had forged a “good relationship” with North Korean leader Kim Jong Un at the start of their historic meeting, just months after they traded insults and tensions spiraled in the region over the reclusive regime’s nuclear programs.

Kim said the meeting was “a good prelude to peace”, but there was some unease among investors about the outcome of the talks given the tense relations between the two nations.

The combatants of the 1950-53 Korean War are technically still at war, as the conflict, in which millions of people died, was concluded only with a truce.

The dollar rose against the safe-haven yen, while the Korean won KRW= gained 0.2 percent to edge above a recent two-week trough. U.S. stock futures were barely changed with E-Minis for the S&P 500 ESc1 up 0.02 percent and Dow futures inching 0.06 percent higher.

In Asian equity markets, trading was volatile with Japan’s Nikkei .N225 paring early gains to add 0.3 percent after earlier rising as much as 0.9 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS seesawed between positive and negative territory, and was last up 0.1. South Korean shares .KS11 fell 0.2 percent in choppy deals, while Chinese shares were buoyant after starting in the red with the blue-chip .CSI300 jumping 0.8 percent.

Australian shares were a tad firmer.

“It seems that investors are hesitant to carry large directional exposure into this week’s events,” Citi analysts said in a note.

FILE PHOTO: A man looks at an electronic stock quotation board outside a brokerage in Tokyo, Japan February 9, 2018. REUTERS/Toru Hanai

Even so, leveraged investors were long Korean won, Citi said citing the average of past four weeks of money flows.

“Any disappointment from the summit could cause an unwind of such bullish positions. On the other hand, a successful summit could trigger a faster conversion into the Korean Won of foreign currency deposits.”

Many analysts said the bar was pretty low for what will be deemed a ‘successful’ summit, given the past failures in talks with North Korea.

“So today, we have the opportunity for a historic meeting, a possible end to the Korean war, and a possible move to denuclearize, and maybe even demilitarize the Korean peninsula,” said Robert Carnell, chief economist Asia-Pacific at ING.

“All of that’s great, but how can you make money from it. Well, the short answer is you probably shouldn’t even try.”

Carnell said that a far bigger “existential global threat” was the ongoing tariff dispute after Trump upset the Group of Seven’s efforts to show a united front, choosing to back out of a previous joint communique.

The action drew criticism from Germany and France, and Trump called Canadian Prime Minister Justin Trudeau “very dishonest and weak.”


However, “markets are generally shrugging off the G7 trainwreck,” said Ray Attrill, head of forex strategy at National Australia Bank.

Instead, they are looking ahead to a busy week.

Tuesday’s North Korea summit will be followed by policy meetings of the U.S. Federal Reserve, which is expected to raise rates, and the European Central Bank as well as a Brexit bill vote in the British parliament.

The dollar was well bid on Tuesday, with the dollar index .DXY up 0.2 percent against a basket of major currencies. [FRX/]

On the safe haven yen, the dollar jumped to a three-week top JPY= of 110.49 in early deals. It was last at 110.28.

Helping calm markets were comments from Italy’s new coalition government that it had no intention of leaving the euro zone and planned to cut debt.

The euro EUR= stepped back from a three-week high of $1.1840 to be last down 0.2 percent at $1.1763.

In commodities, U.S. crude CLc1 was rose 6 cents to $66.16 per barrel, while Brent LCOc1 dipped 1 cent to $76.45.

Spot gold XAU= slipped 0.2 percent to $1,297.42 an ounce.

Editing by Shri Navaratnam

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