London Open: Developing news to watch out of the Koreas

Market Analysis / 2 Min Read
Stephen Innes / 21 Apr 2020

London Open 

USDKRW gaps up to 1236.5 from around 1226.7 citing CNN that North Korean leader Kim is in grave danger following his surgery. So, succession risk is causing global equity markets to buckle. But, as we've seen countless times before, a rise in geopolitical risk in the Korean Gulf is usually a fader’s paradise.  

However, the South Korean government says media reports on North Korea's Kim are 'not true,' Bloomberg reports, citing Yonhap. USDKRW is down to 1230 from 1238 on this. The pair have traded to a high of 1239 so far. We’ve seen mixed flows with macro and options names buying while asset managers are selling. But where there's smoke there’s fire.

Severe contango in the WTI curve beyond the front-month contract suggests that near-term downward pressure will remain static until the lifting of lockdowns in the US triggers more robust demand, or when domestic production declines more sharply.

Ripple effects into other asset classes have been tame so far. However, if the US oil supply now shrinks sharply, the impact on energy equity and credit markets, and associated employment, could have an adverse financial-market and economic effect for months to come.

Korea's 20-day trade data for April were fragile, falling 26.9% y/y; Korea's trade data suggests that its inputs into China's production processes remain in the doldrums.

WTI crude trades above $0/bbl after collapsing into negative territory (Bloomberg). Some of these oil headlines coming out are a bit deceptive: it mentions oil (which could be assumed to be spot) but applies to the May NYMEX WTI future.

The dislocation ahead of this week's May NYMEX WTI future expiry has blown out the forwards (the equivalent of EFPs in precious metals), and that means bids and offers for oil EFPs are likely as wide as they were for precious metals when they blew up a couple of weeks ago.

In other words, focus on the contract that you are trading, which is June.

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

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