North Korea Slams South Korea-U.S. Drills as South Recovers Missile Parts

Political

Summary:

North Korea's military said on Monday that recent South Korea-U.S. military exercises were an "open provocation and dangerous war drill", as the South said it had recovered parts of a North Korean missile that landed off its coast.

Last week, North Korea test-fired multiple missiles, including a possible failed intercontinental ballistic missile (ICBM), and hundreds of artillery shells into the sea, as South Korea and the United States carried out six-day air drills that ended on Saturday.

The North's military said the "Vigilant Storm" exercises were an "open provocation aimed at intentionally escalating the tension" and "a dangerous war drill of very high aggressive nature".

The North's army said it had conducted activities simulating attacks on air bases and aircraft, as well as a major South Korean city, to "smash the enemies' persistent war hysteria"

The flurry of missile launches included the most ever in a single day, and come amid a record year of missile testing by the nuclear-armed North Korea.

South Korean and U.S. officials have also said that Pyongyang has made technical preparations to test a nuclear device, the first time it will have done so since 2017.

An official at South Korea's Joint Chiefs of Staff said on Monday that a South Korean ship had recovered debris believed to be part of a North Korean short-range ballistic missile (SRBM) that landed off the South's coast last week. It was the first time a North Korean ballistic missile had landed near South Korean waters.

The South Korean Navy rescue vessel used an underwater probe to recover the parts, which are being analysed, the official said.

Disputed Claims

The North Korean military said it fired two "strategic" cruise missiles on Nov. 2 toward the waters off South Korea's Ulsan, the southeastern coastal city housing a nuclear power plant and large factory parks.

South Korean officials called that claim "untrue" and said they had tracked no missiles near there.

Analysts said some of the photos released by North Korean state media seemed to be recycled from launches earlier in the year.

The operations also included a launch of two "tactical ballistic missiles loaded with dispersion warheads," a test of a "special functional warhead paralysing the operation command system of the enemy," and an "all-out combat sortie" involving 500 fighter jets, according to a statement carried by the official KCNA news agency.

Five hundred fighters would represents almost every dedicated combat aircraft in the North's inventory, which seems unlikely given many are 40-80 year old airframes and not all are serviceable or kept in the active fleet, said Joseph Dempsey, a defence researcher at the International Institute for Strategic Studies.

"(The) 500 figure seems exaggerated or at least misleading," he said in a post on Twitter.

The General Staff of the North's Korean People's Army (KPA) accused Seoul and Washington of eliciting a "more unstable confrontation," and vowed to counter their drills with "sustained, resolute and overwhelming practical military measures."

"The more persistently the enemies' provocative military moves continue, the more thoroughly and mercilessly the KPA will counter them," it said in the statement.

New missile?

The photos released by state media appeared to show a previously unreported new type or variant of ICBM, analysts said.

"It's not explicit in their statement, but the design doesn't correspond to one we've seen before," said Ankit Panda, a missile expert at the Carnegie Endowment for International Peace.

He said the launch shown may have been a developmental platform for evaluating missile subsystems, including possibly a vehicle for multiple independently targetable reentry vehicles (MIRVs), which allow a single missile to drop nuclear warheads on different targets.

"This is definitely an ICBM-size missile," Panda said.

George William Herbert, an adjunct professor at the Center for Nonproliferation Studies and a missile consultant said the images showed what appeared to be a new nosecone on North Korea's Hwasong-15 ICBM, which was first tested in 2017.

The nosecone has a different shape, and appears larger than necessary for the 200- to 300-kiloton nuclear device shown in state media and apparently tested in 2017, he said.

Herbert said the shape is more suited for a single large warhead than multiple smaller warheads such as a MIRV.

Kim has called for the development of both larger nuclear warheads, as well as smaller ones, which could be used in MIRVs or for tactical weapons.

Source: Reuters

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Comments

Add to Favorites

Devin

Economic

Euro zone finance ministers will discuss on Monday how to better coordinate support for economies against soaring energy prices to reduce the uncertainty such schemes create for their 2023 budgets and to better prepare for a looming recession.

Germany angered its European Union peers in September by announcing a plan to support households and businesses worth up to 200 billion euros - an amount few countries can match and which critics say threatens fair competition within the EU's single market. Other EU countries have also announced support plans, but smaller.

Such schemes, which act like a fiscal stimulus, not only increase already large public debt in the 19-country euro zone, but also make it difficult for the European Central Bank to fight inflation which hit an annual 10.7% in October.

With that in mind, euro zone ministers agreed in September and October that government help should be targeted and temporary - but many such schemes have not been.

"The measures have not been as targeted and temporary as planned, most of them have been broad," said a senior euro zone official involved in the preparation of the ministers' talks. "There is recognition that the broad measures are not sustainable for long."

One of the options under discussion is for governments to provide a fixed amount of energy to a consumer at a subsidised price, with consumption above that limit to be settled at the higher market price, officials said.

"It would be not be optimal, but we are not looking for optimal, but for politically and economically sustainable," the same senior official said.

"If there is sufficient common ground, we would be looking to the European Commission to work out the details and a set of principles that EU governments could implement in national policies."

Such common principles would allow the EU to retain fair competition among its economies and also help the ministers plan budget spending in 2023.

Last month, all euro zone countries submitted their draft budgets for next year to the Commission for checks to ensure they comply with EU rules and a common fiscal policy stance that is to shift from "supportive" this year to "neutral" in 2023.

But they only contain spending that has already been legislated for, without taking into account needs that may arise later in 2023 when some of the existing energy support schemes may need to be extended.

An economic recession, expected at the start of next year, is likely to add to fiscal pressures on budgets, even if it eases inflationary pressures through falling demand, officials said.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

Cohen

Commodity

Canada has just upped the ante in the global competition to secure critical minerals.

The Canadian government this week ordered Chinese companies to divest their holdings in three Canadian-listed junior mining companies planning to develop lithium deposits.

The ban comes within days of Canada announcing a tougher policy on investment in the minerals sector by state-owned entities, particularly those from China, which dominates the processing of key energy transition metals such as lithium, cobalt and rare earths.

The order to divest follows what the government said was a "multi-step national security review process, which involves rigorous scrutiny by Canada's national security and intelligence community."

It promised to continue to "act decisively when investments threaten our national security and our critical minerals supply chains, both at home and abroad."

The move marks a hardening of geopolitical battle-lines in the metals sector and raises the question of what Canada and its metallic allies might do next in the name of national security.

Protecting The Pipeline

The three impacted Canadian companies - Power Metals Corp, Ultra Lithium Inc and Lithium Chile Inc - are sitting on lithium deposits in Canada, Argentina and Chile respectively.

Power Metals' properties in Ontario also contain tantalum and caesium, both of which are also classified as critical minerals by Canada and the United States.

All are next-generation projects, part of a growing pipeline needed to feed the world's hunger for lithium.

And all have recently announced strategic investments by Chinese players offering not just money but processing expertise and off-take commitments.

Sinomine, one of the world's largest rare earth producers, took a 5.7% stake in Power Metals for C$1.5m in a January fund-raising round.

Zangge Mining Co, a major Chinese lithium and potash producer, lifted its interest in Ultra Lithium to 14.2% in May and in June entered into an agreement to finance development of the Laguna Verde lithium project in Argentina.

Chengxin Lithium used a private placement by Lithium Chile in May to boost its stake to 19.4% for C$28 million.

All three Chinese companies have fallen foul of Canada's newly beefed-up Investment Canada Act and must now divest their holdings.

The three abandoned brides will have to find new partners with the government proviso that suitors "share our interests and values."

Widening The Net

Canada's new policy on critical minerals investment is wide-ranging and far-reaching.

It's not just China's state-owned players that will come in for extra scrutiny, but also any private investors "assessed as being closely tied to, subject to influence from, or who could be compelled to comply with extrajudicial direction from foreign governments."

The policy covers not just mining but all stages of the minerals processing chain.

It extends, most obviously in the case of Ultra Lithium and Lithium Chile, to overseas assets as well as domestic.

Canada's critical minerals list, updated in March this year, is extensive, covering not just the esoteric rare earths family and energy-transition inputs such as lithium, cobalt and nickel but also mainstream industrial metals such as aluminium, copper and zinc.

These are currently highly globalised markets, pivoting around China as the world's largest user of industrial metals.

Canada, for example, has for many years been a supplier of mined copper concentrates to China, shipping 430,000 tonnes last year.

Such mine off-take deals may not be immune from Canada's national security considerations.

"We will need to be very thoughtful going forward about what we are willing to allow," said Canadian Natural Resources Minister Jonathan Wilson in a June interview with the Globe and Mail. "It is not just true of ownership, but I think we also have to be looking at things like long-term off-take agreements," he added.

Canada's overriding priority, Wilson explained, is one of "protecting itself in an area that is clearly strategic and ensuring that those supply chains will be robust for our allies."

Metal Bloc

Canada's clamp-down on Chinese investment in critical minerals should be seen in the context of an emerging metallic NATO of like-minded countries looking to reduce their dependence on the China and Russia.

The Minerals Security Partnership (MSP), launched in June this year, includes Australia, Canada, Finland, France, Germany, Japan, the Republic of Korea, Sweden, Britain, the United States, and the European Commission.

The nascent alliance is still fractious.

The United States' Inflation Reduction Act, linking electric vehicle subsidies to domestically-produced metals, has infuriated both the European Union and South Korea.

Heated negotiations are currently taking place between U.S Trade Representative Katherine Tai and the European Commission, which is looking for some form of exemption for friendly countries.

Assuming the current spat can be smoothed out, there is the clear potential for other members to halt Chinese investment into their respective mineral sectors.

Australia is already doing so. In April it blocked an attempt by the Chinese state-owned Baogang Group to take a 13% share in Northern Minerals, which owns the Browns Range rare earths deposit in Western Australia.

In the same month it also blocked Yibin Tianyi Lithium Industry from taking a stake in AVZ Minerals, which has lithium projects, with associated tin and tantalum, in the Democratic Republic of Congo.

Canada's definition of domestic critical resources to include any company listed on its stock exchange will resonate amongst both the heavyweight mining companies in Britain's FTSE-100 and the many junior resource companies listed on London's AIM market.

All will need to heed the Canadian government's advice to its companies that they "carefully review their investment plans to identify any potential connections to (...) or entities linked to or subject to influence by hostile or non-likeminded regimes or states."

The metallic uncoupling of China and the rest of the world has just entered a new, more aggressive phase as governments overrule free markets to defend their supply chains.

Canada's three-pronged attack on Chinese investment is just the start of the next chapter in the great critical minerals game of nations.

($1 = 1.3736 Canadian dollars)

Source: Reuters

Risk Warnings and Disclaimers

Comments

Add to Favorites

FastBull Featured

Remarks of Officials

Boston Fed President Susan Collins spoke on monetary policy on Friday (Nov. 4) after the release of the non-farm payrolls, with the following key elements.

With inflation much too high, and job-availability robust, the priority is to bring inflation back to the 2 percent target, consistent with the Fed's dual mandate from Congress. It is clear there is more work to do, to get there. I expect this will require additional increases in the federal funds rate, followed by a period of holding rates at a sufficiently restrictive level for some time.

Lowering inflation requires slowing economic activity, and bringing demand and supply in the labor markets into better balance to relieve inflationary pressures. While there are risks and uncertainties, I remain optimistic about the possibility of achieving this without a significant economic slowdown.

The aggressive pace of interest rate increases to date has been appropriate, given rates had been near zero before March. Now that rates are in the restrictive territory, the next phase of tightening should shift from a focus on pace to a focus on levels – determining the level needed to be sufficiently restrictive. I expect it will be appropriate to continue raising rates, with the size of future increases determined by a holistic assessment of incoming information.

As policy becomes more restrictive, the risks of overtightening rise. Increasingly, these risks must be thoughtfully weighed against the risks of moving too slowly and allowing higher inflation expectations to become entrenched.

Five Takeaways from Boston Fed President Susan M. Collins’ November 4, 2022 Remarks

Risk Warnings and Disclaimers

Comments

Add to Favorites

Thomas

Central Bank

Fitch Solutions Country Risk and Industry Research expects Malaysia's interest rates to peak at 3.25%.

In a statement last Friday (Nov 4), the firm said it expects inflation to stay above its historical average, and with real interest rates still negative, this should prompt Bank Negara Malaysia (BNM) to continue normalising its monetary policy settings.

"Risks to our interest rate forecasts are weighted to the upside, given that the US Federal Reserve (Fed) remains quite hawkish, which could trigger more selling pressure on the ringgit if real interest rate differentials shift sharply in favour of the US," it said.

Fitch Solutions said that as expected, BNM hiked its overnight policy rate again to 2.75% last Thurday, its final scheduled meeting for the year.

The firm added that this came after the Fed hiked interest rates by 75 basis points (bps) last Wednesday.

It said the 25 bps hike by BNM was the fourth straight increase of that magnitude since the central bank began its rate hiking cycle in May, taking its cumulative rate hikes to 100 bps.

"Going into 2023, we maintain our view that BNM will raise interest rates by an additional 50 bps to a peak of 3.25% in 2023."

"However, risks are firmly weighted to the upside as major central banks around the world, particularly the US, remain quite hawkish, which could prompt BNM to hike interest rates more aggressively in order to safeguard ringgit stability,” it said.

Inflation

Fitch Solutions said it now expects headline inflation to moderate over the coming months to 3.7% by end-2022 (from 4.0% previously), and average 3.4% in 2022 (from 3.5% previously), before averaging about 3.1% in 2023.

"Malaysia's headline inflation figure eased slightly to 4.5% year-on-year in September, from a 16-month high of 4.7% in August, peaking slightly earlier than we previously expected."

Despite slight revisions of our inflation forecasts, the key takeaway is that price pressures will likely remain higher than the historical average of 1.5% (2016-2021), while real interest rates remain negative.

Fitch Solutions said this suggests to us that there is more room for BNM to hike interest rates back to its pre-Covid levels of around 3.00%-3.25% to safeguard macroeconomic stability.

It said despite existing price controls and fuel subsidies, price pressures in Malaysia have picked up due to a recovery in domestic demand and elevated food prices, and expects these dynamics to continue into 2023.

Ringgit

Fitch Solutions also said risks to its interest rate forecasts are weighted to the upside as there is an increasing likelihood of higher terminal rates in many of the developed markets than previously expected.

It said that for instance, Fed chair Jerome Powell said in the meeting last Wednesday that "incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected", which points to significant upside risk over the near term.

Source: Reuters

Risk Warnings and Disclaimers

Comments

Add to Favorites

FastBull Featured

Daily News

[Quick Facts]

1. Federal Reserve officials consider slowing the pace of interest rate hikes at the next meeting.

2. Italy plans to allocate at least 15 billion euros to deal with the energy crisis.

3. The Fed may need to raise interest rates to above 6%.

4. The non-farm payrolls in October may be designed to serve political purposes.

5. The Bank of England will communicate with the Debt Management Office on the bond sale.

[News Details]

1. Federal Reserve officials consider slowing the pace of interest rate hikes at the next meeting.

U.S. Nonfarm payrolls rose by 261,000 in October, beating market expectations. Average hourly earnings grew slightly faster than expected from a year earlier, but the year-on-year growth was slower than expected in September.

After the data were released, Fed officials said they would consider narrowing the rate hike at the next policy meeting despite the latest data showing strong job growth in October and only minor signs of progress in lowering inflation.

Richmond Fed President Tom Barkin said in a speech after the data release that the jobs data showed "the labor market remains tight" and that while he remains open to the outcome of the next policy meeting in December, he is still prepared to take a more "cautious" approach to the pace of future rate hikes. He believes this means a possible slowdown. He thinks this means that the pace of interest rate hikes may be slowed, the time of hikes extended, and the terminal rate may be higher.

And Collins said on Friday that if necessary, December could still raise rates by 75 bps, and the hike options should include 75 bps and other smaller margins, with terminal rates expected to be higher than the Fed expected in September. But with rates now at a restrictive level, he thinks it is time to shift the focus from the speed or pace of rate hikes to how high to raise rates. In other words, determining what is a sufficiently restrictive level.

2. Italy plans to allocate at least 15 billion euros to deal with the energy crisis.

Italy plans to set aside at least 15 billion euros ( about 106.2 billion Chinese yuan) in next year's budget to ease the impact of soaring energy costs on businesses and households. Italian Prime Minister Meloni said she will postpone measures such as pension hikes and tax cuts she promised during her campaign and use the money to tackle the current energy crisis.

3. The Fed may need to raise interest rates to above 6%.

Former U.S. Treasury Secretary Summers believes the Federal Reserve may need to raise interest rates to 6% or higher to keep inflation under control. "I would raise my expectations for the peak level of interest rates. While a rate hike to 6% or higher is not my personal estimate, I wouldn't be surprised if that were the case". Earlier, Chairman Powell said at a news conference that the peak level of interest rates reached next year could be higher than the expectations made by the Fed in September. But he did not disclose the specific level of the new peak.

4. The non-farm payrolls in October may be designed to serve political purposes.

The well-known financial blog Zero Hedge commented on the October Nonfarm Payrolls: Of note, full-time employment decreased by 433,000 and part-time employment increased by 164,000 in October; while among the major groups of workers, the unemployment rates of adult females (3.4%) and whites (3.2%) increased in October. Unemployment rates for adult men (3.3%), teenagers (11.0%), blacks (5.9%), Asians (2.9%), and Hispanics (4.2%) were virtually unchanged during the month, perhaps because companies seeking "fairness" fired white workers first.

Overall, today's report is of little importance - its entire purpose may be purely political, intended to prepare for the midterm elections. As for the real numbers and the dramatic backward revisions, look for the December numbers, when the Bureau of Labor Statistics (BLS) will finally have to admit that the poor state of the U.S. labor market is a depressing fact.

5. The Bank of England will communicate with the Debt Management Office on the bond sale.

In a letter to Chancellor of the Exchequer Jeremy Hunt, Bank of England Governor Bailey said he would communicate with the U.K. Debt Management Office (DMO) about the central bank's plans to sell the long-term and inflation-linked bonds it has purchased in recent weeks, thus minimizing the impact on the DMO's issuance program.

[Today's Focus]

UTC+8 16:30 Eurozone October Markit Construction PMI

UTC+8 16:40 Speech by ECB President Lagarde

UTC+8 04:40 Remarks by the President of the Boston Federal Reserve Collins and the President of the Cleveland Fed Mester

Risk Warnings and Disclaimers

Comments

Add to Favorites

Samantha Luan

Stocks

U.S. stock futures slipped in Asia on Monday after Beijing denied it was considering easing its zero COVID-19 policy, helping the dollar recover some losses while dealing a setback to oil and commodities.

Risk assets had rallied on Friday amid speculation China was preparing to relax its pandemic restrictions, but over the weekend health officials reiterated their commitment to the "dynamic-clearing" approach to COVID cases as soon as they emerge.

"Despite the denial, notions that China will pivot to living with COVID in the new year are unlikely to be quashed given the very real toll that zero-COVID is having on the economy," said Tapas Strickland, head of market economics at NAB.

"With China going into winter, most analysts think a change in zero-COVID is unlikely until at least March."

Speculation that China might open its economy saw copper jump 7% on Friday in its biggest one-day rally since 2009, while a range of resources all benefited from hopes of increased demand.

It also sent the yuan surging and triggered a round of profit taking on long U.S. dollar positions, particularly against commodity sensitive currencies such as the Australian dollar.

A little of that reversed on Monday, with the Aussie down 0.4% at $0.6440 after jumping 3% on Friday. The dollar gained 0.9% on the offshore yuan.

The U.S. dollar index bounced 0.4% having dived almost 2% at the end of last week. The dollar was just a shade former on the yen at 146.77 yen, while the euro eased a fraction to $0.9944.

S&P 500 futures turned tail and fell 0.5%, while Nasdaq futures lost 0.6%.

Illustrating the costs of Beijing's strict policies, Apple Inc on Sunday said it expects lower iPhone 14 Pro and iPhone Pro Max shipments than previously anticipated as COVID-19 restrictions temporarily disrupt production.

Still, investors seemed to hope there might be something to the China loosening story and MSCI's broadest index of Asia-Pacific shares outside Japan added 0.3%.

Japan's Nikkei rose 0.6% and South Korea 0.3%. Markets are now waiting on Chinese trade data due later in the session for a guide on global demand.

U.S. CPI Looms

Aiding risk sentiment at the margin were reports the White House is privately encouraging Ukraine to signal an openness to negotiate with Russia.

Dealers were still digesting a mixed U.S jobs report which showed solid gains in the payrolls survey but softness in the less reliable household survey of unemployment.

Four Federal Reserve policymakers on Friday indicated they would still consider a smaller interest rate hike at their next policy meeting, sounding less hawkish than Chair Jerome Powell.

There are at least seven Fed officials scheduled to speak this week, which will help refine the rate outlook with markets now narrowly leaning toward a half-point rate hike next month to 4.25-4.5%.

"We maintain the Fed will see sufficient progress on inflation to pause at 4.75% in February, but the risks are skewed to more hikes that likely bring about a recession sometime later in 2023 or early 2024," said Bruce Kasman, head of economic research at JPMorgan.

Short-term Treasuries managed a minor rally on Friday with two-year yields edging back to 4.68% and off highs not seen since 2007.

The market faces a major hurdle on Thursday when U.S. consumer prices for October are released, with any upside surprise set to test hopes for a step down in Fed hikes.

Median forecasts are for annual CPI inflation to slow to 8.0% and for the core to dip a tick to 6.5%.

Also of note will be midterm U.S. elections on Tuesday where Republicans could win control of one or both chambers and lead to deadlock on fiscal policy.

In commodity markets, gold eased back to $1,673 an ounce after jumping over 3% on Friday.

Oil futures lost some of their gains with Brent off $1.66 at $96.91, while U.S. crude dropped $1.85 to $90.76 per barrel.