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U.S. dollar and Euro notes are seen in this November 7, 2016 picture illustration. Picture taken November 7. REUTERS/Dado Ruvic/Illustration

North Korea’s hotline is open

A renewed hotline between North and South Korea, JPMorgan’s best bets in Asia, and two currencies to watch for on the U.S. foreign-exchange manipulator watch list. Here are some of the things people in markets are talking about.

Korean Hotline

(Bloomberg)-Leaving aside the issue of how big anyone’s nuclear button is, North Korea contacted authorities in Seoul over a hotline for the first time in about two years, paving the way for a thaw during the Winter Olympics despite U.S. President Donald Trump’s fresh taunts at Kim Jong Un. Officials from both countries spoke several times Wednesday to conduct technical checks before agreeing to stop for the day, according to Lee Yeon-du, an official with South Korea’s Unification Ministry. President Moon Jae-in has proposed holding talks Jan. 9 at the border village of Panmunjom, which would be the first formal gathering between the two sides since 2015. The move shows further progress after Kim called for improved relations with South Korea in a New Year’s Day address.

JPMorgan’s Thoughts on Asia

JPMorgan Chase & Co. has lifted its 2018 economic growth forecast for China to 6.7 percent from the consensus 6.5 percent on the back of improving global demand. The outlook puts the U.S. bank among the more bullish forecasts for the world’s No. 2 economy. “While the domestic policy outlook going into 2018 has been broadly tracking our expectations, the global growth outlook has turned more upbeat lately,” economists led by Hong Kong-based Haibin Zhu wrote in a note. Separately, Ayaz Ebrahim, a fund manager at JPMorgan Asset Management, said in a press briefing Wednesday that South Korean stocks are attractive on prospects of improving corporate governance, while some of China’s new economy shares will continue to perform well. Ebrahim also said the firm is looking to add India stocks, and the nation’s private sector banks are attractive as they incorporate financial technology. There are still a number of threats facing China’s economy, however, that could impact those predictions.

Currency Manipulation?

India and Thailand may have to give freer rein to the rupee and baht this year to avoid triggering U.S. accusations that they’re manipulating their currencies to support exports. The Reserve Bank of India has already exceeded a key threshold on how much it can intervene to curb the rupee’s gains that the U.S. monitors, according to Nomura Holdings Inc. Policy makers in Thailand have also passed this level with the baht, said Bank of Tokyo-Mitsubishi UFJ Ltd. Should the two countries’ central banks seek to assuage U.S. concerns — and avoid a range of possible penalties — it would likely lead to gains for their currencies, potentially reducing their export competitiveness. For all the efforts of policy makers last year, the baht appreciated almost 10 percent against the dollar, while the rupee climbed 6.4 percent.

Unrest in Mumbai

It was not a good day to be traveling in Mumbai. Passengers at Mumbai airport were stranded for hours on Wednesday after street protests over the treatment of people in lower castes restricted highway access to the facility and disrupted public transportation across India’s financial hub. Thirty-two flights to and from Mumbai were canceled on Wednesday, according to a spokesperson for the airport, which is run by a consortium led by GVK Power & Infrastructure Ltd. Aircraft tracking website Flightradar24.com counted at least 366 delays of 15 minutes or more. The demonstrations died down in the afternoon, according to local reports. The protests began after a man was killed in the neighboring city of Pune on Monday, in a violent clash between members of the Dalit community, the lowest in India’s rigid caste hierarchy, and so-called upper-caste groups. Dalit groups have since organized street protests in various cities across the state of Maharashtra, of which Mumbai is the capital.

Coming Up…

Japanese stocks finally open for 2018 on Thursday and Tokyo traders may face a challenging first day back as they strive to navigate between a burst of yen strength and the strong opening to the year from stock markets worldwide and especially in Asia. We will also get Japan’s final manufacturing PMI reading for December after a very bullish preliminary figure, along with PMIs for Singapore, Hong Kong, Indian services and Caixin China services. Europe’s day has U.K. house prices, services PMIs for Spain, German, France, U.K., the euro zone and others. The U.S. features St. Louis Fed Bank President James Bullard delivering a keynote address in Philadelphia the day after minutes of the Federal Reserve’s December meeting showed officials continued to back gradual rate increases. We also get ADP employment data as a precursor to Friday’snonfarm payrolls.

 

And finally, here’s what David’s interested in this morning

 

Gold’s been a hit recently, although I can’t say it’s all that surprising. It’s January and for those who don’t already know, we’re entering what’s historically been the best month for bling. The last 15 years have seen gold rise 3.5 percent on average in January. In the years since the metal’s epic fall from grace in 2011, that average moves up to 5.5 percent. If you take the entire first quarter, the 15-year average is at 4.3 percent, the best among all four quarters.

One of the more common narratives this time around is that markets are generally not positioned for higher U.S. interest rates or at least haven’t fully discounted the Federal Reserve’s preferred path up. There’s also the related (and sustained) weakness in the dollar. In fact, gold’s enjoyed the sharpest gains recently on days when the dollar was particularly weak. As far as the levels to watch medium-term go, I’m looking at $1,380 on the upside and $1,252 on the downside. The former was where the price bumped its head in the summer of 2016. Both show up when you do a retracement from the 2011 peak to the 2015 bottom. There are other levels of course, especially over the short-term. Overall, is there a science that’s both generally accepted and consistently explains this start-of-year taste for gold? Unfortunately there’s none. If you see something, I’d be curious to have a look. But the point here is: if there’s a time when gold bulls are most likely to be awake, it’s right now.

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