Daily Comment (March 27, 2018)
by Bill O’Grady and Thomas Wash
[Posted: 9:30 AM EDT] It’s risk-on around the world so far today. Here is what we are watching:
Is Kim in Beijing? Although a number of reports have speculated the leader of North Korea has traveled to China, this news has yet to be confirmed. If he did travel to China, it would be his first foreign visit since becoming the leader of North Korea in 2011. We suspect he isn’t on the train. Instead, this is more likely a high-level delegation updating China on the path of negotiations. Beijing has significant interest in North Korea’s ongoing thaw with the South and potential summit meetings with Japan and the U.S. Although China is likely relieved that the prospect of war has been reduced, it is also probably concerned that it isn’t participating in any of these meetings and worried that its interests are not being represented. As we have discussed, relations between China and North Korea are not nearly as warm as advertised. China does not want to see a hostile power on its border and if the U.S. and North Korea normalize relations it is quite possible that North Korea could become allied with the U.S. and, at least from China’s perspective, part of America’s containment of China. Hence, the visit by someone from North Korea.
Is Abe ok? Over the past month, Japanese PM Abe has been under fire for a land sale scandal. His finance minister looked in grave danger and Abe himself was facing the threat of an internal party revolt. Abe’s approval rating plunged from 56% in February to 42%, the fifth lowest in his current round as PM. Nobuhito Sagawa, a key figure in this scandal and Ministry of Finance official, testified that neither Abe, his wife nor Finance Minister Aso had any involvement in changing the documentation surrounding the land deal. His testimony, at least for now, reduces the likelihood that Abe’s government will fall. On the news, the Nikkei jumped 2.72% and the JPY weakened. The fear has been that a fall of the Abe government would also spell the end of Abenomics, which relies mostly on a weaker JPY and has lifted the values of Japanese financial assets.
Pound down: A report from the BOE, expressing concern that Brexit will lead to loss of market share in the EU for London’s financial services industry, triggered a sharp drop in the GBP this morning. The currency has been appreciating as PM May moves toward a soft Brexit but the BOE’s report acts as a reminder that there will be disruptions from Brexit that will adversely impact the most globalized parts of the U.K. economy.
 See WGRs, North Korea and China: A Difficult History, Part 1 (10/16/17); Part II (10/23/17); and Part III (10/30/17).