North Korea’s Newly Developed Tactical Weapon

North Korea is back on the agenda testing an ultra-modern tactical weapon. What an ultra-tactical weapon is, no one is really sure, but this does seem a return to a more aggressive military stance by the North Koreans.

If so, that might be a problem.

If North Korea stops even trying to hide its weapons program, then President Trump will have to admit that the current strategy is not working, and that raises then the question “What next?”

Financial markets tend not to price in extreme tail-risks, but they might start trying to work out whether more tensions with North Korea will affect U.S. trade relations with China, for example might it increase the chances of a “handshake deal” at the G-20 gathering at the end of this month.

US Treasury Sanctions 17 Saudis on the Khashoggi Case

The U.S. Treasury imposed sanctions on 17 Saudi officials yesterday for their role in the killing last month of Jamal Khashoggi at the Saudi Arabian consulate in Istanbul, Turkey.

This is the first concrete response by the Trump administration to the journalist’s death. The announcement was unusual for the U.S. administration, which rarely imposes sanctions on Saudi nationals.

The sanctions do not target the Riyadh government, an important U.S. security and economic ally.

It also allows the U.S. administration to stop short of any action that might affect lucrative U.S. arms deals with Saudi Arabia that President Donald Trump has vowed to preserve.

The U.S. sanctions were announced a few hours after Saudi Arabia’s public prosecutor said the death penalty was being sought for five out of 11 suspects charged in Khashoggi’s murder, as the kingdom tries to contain its biggest political crisis in a generation.

Financial markets are expected to pay limited attention to this event, also because oil prices have fallen recently.

The Brexit Saga Continuous

If one could put “hypothetically” the Brexit saga in the context of the UK labor market, one could easily say that the UK labor market continues to show signs of significant strength.

The “quit” rate, the percentage of people choosing to leave their jobs, often goes up when the economy is strong because people will be very confident that they can get work elsewhere. When even very low-skilled people voluntarily quit their jobs, that’s generally a sign of a full employment situation.

The number of UK ministers choosing to quit suggests now a red-hot UK labor market.

Politicians are making noise about the interminably tedious UK – EU divorce process. It’s worth noting that it would take an act of Parliament to stop the UK from leaving on the March 29, 2019.

Getting anything through the current Parliament might be tricky.

Even the amount of time available, the options are rather limited. There is almost certainly not enough time to call a referendum on whether to accept the deal, and opinion polls suggest that the outcome would be inclusive.

Opinion polls also suggest that another general election would produce an inconclusive result, even with an electoral bias in favor of the Labor Party.

If nothing happens, then a no-deal exit is the default legal position.

At this stage, attention is focused on the so-called “TARP” scenario where Parliament rejects the deal and then accepts a some almost identical deal.

The Troubled Asset Relief Program or TARP was a U.S. government program to purchase toxic assets and equity from financial institutions to strengthen its financial sector in 2008 to address the subprime mortgage crisis.

Sterling (GBP) is trading at around $1.28

Euro Area Consumer Price Inflation (CPI)

The annual inflation rate in the Euro Area came in at 2.2 percent in October 2018, and slightly above September's final reading of 2.1 percent. It was the highest inflation rate since December 2012 on rising prices of services, energy and industrial goods.

Meanwhile, ECB President Mario Draghi said: “We expect interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure that inflation continues to move towards our aim in a sustained manner. And we have stated that reinvestments will continue for an extended period of time after the end of net purchases.”

For good reason the euro didn’t jump after the relatively good CPI data. The euro is currently trading at around $1.13.

For now at least, it remains “lower for longer.”

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.