Market Brief: If the dollar spent most of the Bank Holiday on the back foot, the missile fired by North Korea over Japan has really kicked it home.

The missile, launched by North Korea early local time on Tuesday, flew over Hokkaido island before crashing into the sea. No effort was made by Japan to shoot down the missile but citizens were urged to seek shelter. A lot of market movement over recent weeks has been driven by Trump. So far the Pentagon has said it’s gathering more information on the incident but we can expect a strong response from Donald Trump.

All last week we were gearing up for Jackson Hole speeches from Mario Draghi of the ECB and Janet Yellen, waiting for some critical clues on monetary policy. In short, the Fed Chair said nothing about monetary policy and only made some very cursory comments on risk taking, namely that the risks of excessive optimism would return sooner or later. This was in the context of justifying post-crisis financial regulation, not an exposition of current asset values. Indeed the speech is very ‘vanilla’ - on financial stability. The market reaction was a weaker dollar – a move that has accelerated over the weekend. Perhaps this is because the markets feared some sort of hints over tightening.

Although we have a shortened week here in the UK, we have a busy one on the data front. The main thing to look for activity wise in the markets, away from the ongoing situation with North Korea, is Friday’s non-farm payroll data where we expect a figure of +200k. Investec still see the Fed as committed to another rate hike in December and it would have to be a shock figure to derail those plans. However a very strong figure could change expectations on the number of hikes we can expect next year – currently two. The main highlight for the UK is Friday’s Manufacturing PMI data.

Thought of the day

We were certainly treated to some lovely weather this weekend – it makes a pleasant change from the bank holiday washouts we’ve had in years gone by! Hopefully it sets the stall for an Indian summer with warm temperatures lasting well into September! Temperatures were certainly at boiling point in the Korean peninsula overnight after the latest North Korean missile test. The markets have responded in kind with GBP/USD breaking back above 1.2900 and EUR/USD breaking through 1.2000. If you have a US dollar requirement but have not yet pushed the trigger on your hedging, the escalation in geo-political tensions may have opened an opportunity for you to do so. Give the Investec dealers a call today where we will be happy to assist.