Risk Off- France, North Korea, Trump and the Dollar in Focus

It’s a quiet day for the markets with Easter Monday leaving trading volumes on the lighter side, European markets closed through the day.

There’s been plenty of noise over North Korea, with sensitivity firmly in place through the long weekend, noise from the Oval office at a whisper, which had left sentiment on the defensive last Thursday.

China GDP and industrial production figures came in better than forecasted this morning, with year-on-year GDP numbers falling just shy of the magic 7% for the 1^st quarter. Growth may have been on the up, but the concern over a conflict between North Korea and the U.S remains the key risk as the markets continue to look to decipher U.S foreign policy, not just on ISIS and the Middle East, but with the rest of the world.

Doubts over whether North Korea has the ability to launch inter-continental nuclear missiles has provided some degree of support for riskier assets, the weekend launch failure certainly an indication of the North’s incapabilities, but caution is still required in the days ahead and this is reflected in today’s moves, the Dollar Spot Index sitting down 0.16% at 100.35, with the Yen up 0.37% at ¥108.27 at the time of the report.

If there are any doubts over market risk sentiment, gold is hovering close to $1,300 levels, up 0.30% at $1,289.58 on the day.

Dollar weakness is adding to the direction of gold, with the markets now not only having to factor in the possible risks associated with a military strike on North Korea, but also Trump’s Dollar policy, which is clear, the weaker the better…

While focus is on North Korea, the shift in the U.S administration’s sentiment towards currency manipulation is of particular interest, Trump having recently retracted currency manipulation accusations towards China. Somewhat ironic when the retraction was followed by a call for a weaker Dollar by the U.S President.

With economic data out of the U.S limited to April’s NY Empire State Manufacturing Index figures, we are unlikely to find much support for the Dollar through the rest of the day, the only real question being whether U.S Treasuries are to see a surge in demand should the chances of a military strike on North Korea build through the coming days.

It’s a relatively quiet week ahead on the economic calendar, which will give the markets little else to focus on other than U.S foreign policy on the Assad regime, U.S – Russian relations and of course North Korea.

We expect the markets to recover from the lack of focus on the up and coming French elections, despite possible strikes on North Korea and the breakdown in relations with Russia being of far greater concern to the markets than whether it’s Le Pen, Fillon, Macron or even Melenchon, whose rampage continues going into the final week.

The 1^st round of the French election is less than a week away and by then we will know whether it’s an all “populist party” final or hope remains for the establishment to hold onto the reigns.

Dollar weakness will likely prevail through the day, with market risk aversion supporting the EUR, which is up 0.22% at $1.0640, the EUR a funding currency.

Only the U.S markets are open today, with the mini Dow and the S&P500 mini futures also in the red at the time of the report, as we would expect, caution gripping the markets as the Trump trade continues to look ripe for a reversal following the U.S administration’s announcement that the healthcare bill will need to come first, pushing back both tax reforms and the heavily anticipated fiscal stimulus package.