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Trump and Kim prepare to go head-to-head

Bloomberg
The G-7 becomes the G-6 after President Donald Trump proposed to return it to the G-8, Trump and Kim Jong Un prepare for their tete-a-tete in Singapore, and Xi Jinping gets another stage to sell his win-win agenda. Here are some of the things people in markets have been talking about.

G-6 Versus One

The Group of Seven industrialized nations have had bouts of tension before, but perhaps not quite like the stormy gathering in Quebec. U.S. President Donald Trump faced criticism from his counterparts over his administration’s moves to boost tariffs on imports from its allies on national-security grounds. In a move that potentially raises questions about the future of the group that has long served as the premier economic superpower confab, Trump then disowned the G-7’s joint statement. White House economic adviser Larry Kudlow said Canadian Prime Minister Justin Trudeau’s labeling of American tariffs as “insulting” had triggered the spat. German Chancellor Angela Merkel said the discord was depressing.

Historic Summit Looms

Trump quickly shifted gears from the G-7 summit to his peace-making agenda with North Korea, heading to Singapore for an historic meeting with Kim Jong Un, the third in the Kim dynasty of dictators in the reclusive north Asian nation. Security experts have found it tough to predict what will come out of the session, given the American president’s unpredictable negotiating style. Few believe North Korea will surrender its nuclear weapons without major concessions from the U.S. But it’s also hard to imagine the U.S. agreeing to a step as radical as, say, withdrawing its military forces from South Korea. A move toward peace could stoke risk-on bets in financial markets, while a breakdown might see the yen in demand as a haven. The end of sanctions could bring an investment boom.

Xi Hosts Asia Leaders

The Trump-triggered disarray among the G-7 played nicely into the hands of Chinese President Xi Jinping, who has been positioning himself as a champion of globalization and defender of multilateralism. Xi hosted a gathering of the Shanghai Cooperation Organization, an eight-member group designed to coordinate security policies across Asia. He and Russian President Vladimir Putin reaffirmed their “strategic partnership” at the meeting. Indian Prime Minister Narendra Modi reached agreement with Xi over some trade issues, and invited his counterpart to come to India for an informal summit next year. Xi accepted, in a sign the two most populous Asian nations are mending ties after bouts of tension over their disputed border.

No Swiss Experiment

Swiss voters overwhelmingly rejected an innovative proposal to rein in financial risks that had got increasing attention from economists and market strategists in recent weeks. The idea, known as Vollgeld in German, would have ended the practice of fractional reserve banking, where banks keep only some deposits on hand to meet withdrawal demands, and lend out the rest. Shifting control of the money supply more directly to the central bank would make the financial system safer, proponents argued. While the initiative is dead for now, the fact that the plebiscite got increasing attention from market participants could spur fresh thinking.

Mueller Rolls On

Special Counsel Robert Mueller’s investigation of Russia’s alleged interference in the 2016 U.S. presidential election continues, with indictments released Friday against Trump’s former campaign chairman, Paul Manafort. The charges added witness-tampering allegations to accusations that Manafort did illegal lobbying work for Ukraine and laundered millions of dollars in proceeds. Meantime, Mueller’s team is said to view Rudy Giuliani more as a spokesman than a legal representative for Trump in the investigations.

What we’ve been reading 

This is what caught our eye the past 24 hours.

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

With North Korea’s relations with the world set to take a major turn this week, expect a large part of the conversation to be on the prospect of unification. This, if it does happen, will be one of those rare and massive undertakings without any recent precedent, so both the size of the bill and who foots it is anyone’s best guesstimate. Perhaps the better one out there is from South Korea itself (which is likely end up paying). About four years ago, South Korea’s Financial Services Commission put an estimate out of half a trillion dollars. That’s the amount, if I recall the report correctly, needed over the course of 20 years to pump-prime the North’s economy to get it closer to that of a middle-income country.

Just to give you an idea how much that’s like darts in a dark room, the FSC said then that the number was open to revision and possibly unreliable. And it comes back to the lack of information on North Korea’s economy. The last time the North released an official GDP report was in 1965. A few years back, the Bank of Korea put its northern neighbor’s economy at about $30 billion — or 50 times smaller than the South. To put that in context, East Germany was about ten times smaller than the West when the Berlin Wall fell in 1989. The unification bill cost West Germany $2 trillion.

 

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