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Time for North Korea dialogue after all?

Trump tries hand at North Korean diplomacy, Saudi crackdown widens, and traders curb enthusiasm on U.S. tax reform. Here are some of the things people in markets are talking about.

Let’s Talk

(Bloomberg) It might be time for dialogue after all. U.S. President Donald Trump told reporters in Seoul that Kim Jong Un’s regime should “come to the table” and refused to rule out the possibility of direct communication with Pyongyang in order to broker a deal on its missile and nuclear weapons program. The more traditional approach was echoed in the U.S. Congress, where the Senate Banking Committee unanimously approved enhanced sanctions against the regime and the banks that support it. Speaking at a dinner with Trump, South Korean President Moon Jae-in struck a similar tone, emphasizing that “war must not break out” on the Korean peninsula. Trump is slated to address South Korea’s National Assembly on Wednesday.

Frozen

Saudi Arabia’s alleged crackdown on corruption is widening, with the kingdom freezing the individual bank accounts of “persons of interest” – including dozens who reportedly are not yet under arrest. More account interruptions may be imminent. On Monday, Trump tweeted that he had “great confidence” in King Salman and Crown Prince Mohammed Bin Salman, and that some of those detained over the weekend had “been ‘milking’ their country for years!” U.S. State Department spokeswoman Heather Nauert said officials have been in touch with their counterparts in Riyadh about the probe, and encouraged these efforts. Saudi Arabia has assured the U.S. that prosecutions “will be held in a fair and transparent manner.” Billionaire Prince Alwaleed bin Talal has lost more than $1 billion after being detained this weekend as shares in his investment vehicle, Kingdom Holding Co., have plummeted. Just ten days before Alwaleed was arrested, he gave no indication of knowing what was looming.

Optimism Fades

Small caps and banks weighed on broad U.S. equity gauges Tuesday, suggesting markets see tax reform as a less likely prospect as lawmakers attempt to tweak the proposal to make it more palatable to their constituents. Meanwhile, multinationals are pushing back against a so-called “atomic bomb” in the bill that would deter them from shifting earnings to more favorable tax jurisdictions. The S&P 500 Index and Dow Jones Industrial Average finished virtually unchanged, while the Nasdaq Composite Index declined. Oil retreated. For some strategists, the persistently flattening Treasury curve is raising fears about a slowdown in U.S. growth.

Coming Up…

The Bank of Thailand is widely expected to keep its bechmark repurchase rate unchanged at 1.5 percent in its Wednesday decision amid persistently sluggish inflation. In Japan, the preliminary September readings of the leading and coincident indexes are both forecast to moderate. Bank of Japan policy board member Yukitoshi Funo is slated to deliver a speech in Miyazaki at 10:30 a.m. Tokyo time. We may also get an update on Chinese trade data for October, with the monthly surplus forecast to swell to $39.1 billion amid decelerating import and export growth.

Futures Down

S&P/ASX 200 and Nikkei 225 futures are trading to the downside ahead of the open a day after the former closed at its highest level since the financial crisis and the latter ended at a mark not seen since 1992. Japanese equity bulls think this party is just getting started. Signs of euphoria are also present in Indian stocks: equity funds have seen 19 straight months of inflows through October and residents are beginning to shift toward financial over real assets.

 

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

 

There’s been a breakout in Australia and the good news is it’s not a case of acne. The main equity benchmark finally regained the 6,000 milestone for the first time in a decade. Honestly, few thought we’d be back at these levels this year. Back in late June when the ASX 200 was trading in the mid-5600s, UBS strategists had penciled in a year-end target of just 5,700. To be fair, Aussie equities were just embarking on a five-month beauty sleep. And looking at the chart of the broader Aussie equity universe, it was exactly what the patient needed – a big upswing with massive momentum coming through the last four weeks. Is this the next flight to catch?

We spoke Michael Preiss of Taurus Wealth Advisors, who advised not to get sucked into the next momentum trade. He fears passive investments have resulted in too many investors being wrongly positioned. I challenged him by saying today’s market conditions are likely to be in place for a while further. His response: that may be true but complacency might not be the right strategy. He says do the opposite of what’s worked until now. It’s time to turn away from ETFs and completely outsource judgement to active hedge fund managers. This is obviously not a revolutionary idea but with little sign the risk trade abruptly does a 180 in the near-term, the timing of the call is certainly non-consensus.

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