Reports suggesting that North Korea is moving an ICBM missile toward launch pad in the western part of the country at night to minimize detection, while South Korea is escalating its military preparedness and the US seeks new sanctions, keep investors on edge. Risk assets are mixed. Gold is slightly lower. While the yen is stronger, the Swiss franc is heavier. Asia equities slipped, and European shares are recouping much of yesterday’s 0.5% loss.  

The Korean story is likely to continue to provide the main geopolitical backdrop to the investment climate. There is some thought that North Korea may launch its ICBM as early as September 9, National Foundation Day. South Korean shares moved lower for the fourth session, and fifth in the past six. It fell nearly 0.9% last week and is off another 1.3% this week. Foreign investors, who had been small buyers of Korean shares in the past two sessions, sold the most Korean shares today in three weeks (~$237 mln). The Korean won edged slightly higher against the dollar (~0.15%). It has risen against the dollar for the past three weeks (~1.8%).  

Elsewhere the main economic data today consists of the outcome of the Reserve Bank of Australia meeting and the service sector PMI and composite reports. In the North American session, Fed Governor Brainard speaks early and later factory goods orders. The Bank of Canada meets tomorrow. Strong data, especially the Q2 GDP (4.5% annualized) has spurred a reassessment of the central bank’s trajectory. A month ago (August 4) the market had discounted a little more than a one in three chance of a hike this week. Now, interpolating from the OIS, the odds are about 55% in favor of a hike.  

The RBA meeting left rates decisively on hold, as widely expected. Like other central bankers, Governor Loweis expected that continued improvement in the labor market will lift wages and inflation.  Separately, Australia reported improved net exports for Q2 (0.3% vs. -0.7% in Q1) and this had spurred speculation that tomorrow’s Q2 GDP may surprise on the upside. The median forecast is for a little less than 1% quarter-over-quarter growth. The Australian dollar is firm but within the range seen before last weekend (~$0.7920-$0.7795). Copper prices continued to rise and now are at their best level in three years. Other industrial metal prices are lower after yesterday’s surge.