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US Urges for Stronger Sanctions against North Korea, Effectiveness in Doubt Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Tue Sep 05 17 00:40 ET

The focus remains in the heightened North Korean tensions. Demand for safe-haven assets increased with Swiss franc and Japanese yen the best performers (amongst the majors) against US dollar. USDCHF fell -0.68% while USDJPY was down -0.55%. US stock and bond markets were closed for public holiday. The impacts should be reflected as markets reopen today. In the commodity sector, gasoline prices declined as refineries at Texas gradually resumed operations. It was reported that around 5.5% of the US Gulf of Mexico oil production remained shut on Sunday. At the time of writing this report, the RBOB gasoline contract for October delivery, has fallen -4.2%, while the heating oil contract has been down -2.1%. The front-month WTI crude oil contract has edged +0.21% higher. Precious metals strengthened as geopolitical tensions heightened. The benchmark Comex gold contract has rallied to a 1-year high of 1337, while silver is at its highest level in 5 months, at the time of writing this report.

Following North Korea's hydrogen bomb test on Sunday, US' UN Ambassador Nikki Haley noted at the UNSC meeting that North Korea is "begging for war" and suggested that "only the strongest sanctions will enable us to resolve this problem through diplomacy". The US wants the UN to vote on new sanctions on September11. US Defence Secretary James Mattis warned of a "massive military response" if needed. G7 leaders have condemned North Korea. German Chancellor Merkel condemned the "new and unacceptable escalation by the North Korean regime", while China warned North Korea against launching another missile but regarded the US' threat of tougher trade sanctions as "unacceptable".

Indeed, we doubt if North Korea's nuclear developments would be deterred by more sanctions, a tool that has been adopted since the hermit kingdom's first nuclear test in 2006. Just happened last year, North Korea conducted its fifth nuclear test in September, just 6 months after the UNSC passed the so-called most "comprehensive" "robust" and "unyielding" sanctions against the country. Nuclear weapon is so critical for North Korea's survival that it will not give up, not to mention that China, its closest ideological comrade, has been secretly supporting its developments.

The freshly-released RBA monetary decision is to keep the cash rate unchanged at 1.5%. The move had been widely anticipated. Earlier today, China's Caixin services PMI gained +1.2 points to 52.7 in August, beating expectations of 51.8. In the European session, Swiss GDP probably shows a +0.5% q/q growth in 2Q17.From a year ago, GDP growth might have eased to +1%, from +1.1% in the first quarter. Headline inflation in Switzerland probably improved to +0.5% y/y in August, from +0.3% in the prior month. In the Eurozone, retail sales probably contracted -0.3% m/m in July, after gaining +0.5% a month ago. US factory orders probably contracted -3.3% m/m in July, after expanding +3% in June. The dataflow on Monday was light. The Sentix investor confidence index for the Eurozone gained +0.5 point to 28.2 in September, beating consensus of a drop to 27. Eurozone's headline PPI moderated to +2% y/y in July, from a downwardly revised +2.4% a month ago.


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