North Korea Discussion and Significant Event Risk

North Korea Claims to have conducted a successful nuclear test in spite of global condemnation. According to the draft UN statement released on Friday: "the Security Council deems that should North Korea carry out its threat of a nuclear weapon test, it would jeopardize peace, stability and security in the region and beyond."
However it seems N.Korea went ahead with their test. While S. Korea did detect seismic activity they were unable to confirm if the activity was manmade or natural…however in our (amateur opinion) the time seems more then an arbitrary.

Clearly this event will weigh heavily on the already vulnerable JPY. Yen slid .8% against the USD to 119.20 on reaction to the event, and EURJPY 150.24 and GBPJPY broke psychological 223.00 lvl. With Japan enjoying a national holiday we feel only light market resistance.

South Korea has called an emergency meeting of Monday and the U.N said the Security Council will also convene. The US and Japan have both backed sanctions should the nuclear test be confirmed.


Going Forward we see five viable scenarios unfolding:

-- North Korea will exist as a nuclear power (similar to global policy towards India and Pakistanis nuclear test).
-- Japan will see this as an opportunity for military escalation including the addition of nuclear weapons.
-- North Korea will look to sell technology to Iran and Venezuela (and other entities) for oil and currency.
-- China will seize this opportunity to become a true global power.
-- US Military action against Korea (lowest probability at this point).


Risk aversion trades will be the play of the day. Look for appreciation in USD, CHF, gold and oil and to a lesser extent AUD.