Kim Jong Un is at it once again, this time stating that he plans to launch missiles towards the island of Guam. Its army plans to complete this mission before months end. Although not meant to be an attack, it is considered by Kim to be a “test mission”. However, it happens to be directly on the path of high volume air traffic. Therefore, it is an exceptionally dangerous situation.
Stocks are falling sharply this morning, pushed lower by weak economic news combined with fears over North Korea’s actions. However, as we have seen in recent history, poor stock market performance tends to be short lived and followed by extreme optimism and record setting days. Therefore, this is just a normal part of the process for the stock market.
Inflation on the wholesale side continues to weaken, with the Producer Price Index showing a drop of 0.1%. This was well below the +0.1% gain anticipated by the markets and brings the year over year figure from 2.0% down to 1.9%. When you consider that just a couple of months ago this figure was at 2.4%, there is clearly a softening of inflation happening.
With bonds still beneath a significant ceiling of resistance that bonds haven’t been above since mid-November of last year, we will maintain our locking bias.