Despite tension in the Korean peninsula, global asset markets continue to perform well. The S&P 500 is quietly edging up to its highs of the year and forward looking measures of volatility, e.g. the CBOE’s VVIX, are declining to levels last seen in early August. Unless there is fresh news from Korea, today’s events look set to extend this benign run. There is no US data of note, but the Fed speakers (Brainard at 1330CET and Kashkari at 1830CET) are certainly on the dovish end of the Fed spectrum. As an aside today, we see the news that Norges Bank is proposing to cut its EM bond investments (currently 12%) from the nation’s fixed income portfolio. The rationale is that diversification in fixed income is not delivering the same benefits as the diversification in equity investments. The market may choose to ignore this news today, but Norway’s government pension fund has been one of the most forward-looking Sovereign Wealth Funds over recent years and the news looks certain to prompt a debate. DXY to drift to 92.00, since it is heavily weighted to safe havens of EUR & JPY.

ECB will struggle to generate a lasting correction in the buoyant EUR. For today, EUR/USD may well trade inside a 1.1850-1.1950 range. Elsewhere, Swiss 2Q17 GDP disappointed and with what should be a low CPI figure released later (0.4% YoY) should serve as a reminder that the SNB will ‘out-dove’ the ECB. Korean-triggered weakness in EUR/CHF looks a buying opportunity in the 1.1300/1350 area.

Noise-levels regarding Brexit remain elevated and look set to extend further. Brexiteers are once again pushing for a Hard Brexit (no deal with EU) and there is now focus on a potential speech from PM May on Sep 21, where we doubt she takes a harder line. PMI services is the focus today, but we doubt GBP finds much solace from the data over coming months. EUR/GBP looks steady nr 0.92.
The trade weighted index for the CNY (CFETs) yesterday rose to the highest level since mid-June 2016, briefly coming out of an ~3% trading range ithas been in for that whole period. USDCNH has now caught up with the weakness in the DXY index seen since the start of the year. What will be important is whether the basket stays lastingly above the historical range. We remain long CNH, supported further by China’s Financial News suggestingFX reserves should be kept steady to stabilize market expectations and that “Regulators should continue to guide market expectations and prepare for yuan appreciation”