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Trump and Kim: the start of a beautiful new friendship?

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Donald Trump shook hands with Kim Jong-un in Singapore last night, confirming once and for all that reality is nothing but the fever dream of a deranged god.

The summit – the first time US and North Korean heads of state have sat down together in the hermit state’s history – marks the start of a bold new chapter for US foreign policy. During the 40-minute discussion and subsequent ‘working lunch’, the two leaders chewed over denuclearisation, winding down US – South Korean war games and North Korea’s human rights record (maybe). Kim Jong-un gave his word that the DPRK would dismantle its nuclear programme, Trump made concessions that will alarm his colleagues in Seoul and Dennis Rodman cried on TV. At the conclusion of the meeting, both men signed an ‘agreement’ using fountain pens adorned with Trump’s signature; the President even gave his new BFF a brief tour of his chemical weapons-proof motorcade, known affectionately as ‘The Beast’.

Despite the meeting’s historic and political significance, it was hard to grasp exactly what had been achieved. After a signature rambling press conference, during which the Donald discussed North Korea’s beaches (“I explained to them you could have the best hotels in the world”), human rights abuses (Question: “Have you betrayed those in North Korean Gulags?” Answer: “No…I think they are one of the great winners today”) and his own skills of recollection (“I have one of the greatest memories of all time”), journalists and world leaders alike seemed none the wiser. South Korea, on whose behalf Trump authorised himself to speak, seemed a little alarmed at the concessions being made in their name. “At this moment, the meaning and intention of President Trump’s remarks requires more clear understanding”, tweeted a Blue House spokesperson.

While South Korean President Moon Jae-in later offered his “heartfelt congratulations” for “a feat no one else ever delivered”, it’s difficult to tell whether this momentous occasion represents a genuine diplomatic breakthrough, or simply an ego-massaging PR exercise for two attention-hungry statesmen.

The unprecedented summit posed a unique problem to traders around the world. Could the agreement alleviate geopolitical tensions, hitting safe-haven instruments like gold and the Japanese yen? Would emerging Asian currencies like the Korean won, Thai baht or Indonesian rupiah enjoy their time in the sun as a result? Or would the markets remain largely indifferent to this momentous occasion, continuing 2018’s theme of unpredictability?

By the time Donald Trump brought his press conference to a close on Tuesday morning, JPY had extended its losses against the dollar, with the USDJPY punching above 110.40. It seems that the ambiguous outcome of today’s meeting was enough to stimulate risk appetite amongst traders and investors. Lukman Otunuga, a Research Analyst for award-winning broker FXTM, agrees: “The weakness in the Yen signals an improved risk-on sentiment. With the Dollar likely to remain supported by Fed hike expectations, the USDJPY has scope to venture higher. A technical breakout above 110.50 could encourage an incline towards 111.10.”

Mr. Otunuga believes that this kind of market sentiment is likely to become more prevalent; as geopolitical tensions wane, traders become bolder. “This is likely to be a catalyst for further risk appetite in the financial markets. Improved momentum towards global stocks and further risk appetite attracting investors are a possibility.”

So, does this morning’s summit herald a new era of prosperity in the financial markets? It’s too early to say. The fortunes of the dollar and euro are more likely to be influenced by this week’s FED and ECB meetings in the short term; FED Chairman Jerome Powell is expected to raise interest rates on Wednesday, while the ECB is likely to discuss the end of quantative easing.

So far, so tentative. It’s up to Trump and Kim to offer concrete reassurances on issues like denuclearisation, human rights and peace. Only then will this historic – and slightly hallucinogenic – event make its mark on the markets.

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Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

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