During Obon and summer vacation, how far will risk-off in a quiet market go!? ~ Focus points for August 13 ~

◎ Today's Highlights

1) Risk Off

There are multiple current risks listed, including deteriorating US-China relations, Hong Kong protests, Italy’s snap elections, Argentinian peso decline, yuan reference rate, the Strait of Hormuz (IRGC), North Korea missiles, Turkish sanctions, no-deal Brexit, and Japan-South Korea relations.

US-China Relations

Both sides are showing restraint and seeking the next move. Neither side appears willing to back down, and the real economy is starting to feel the impact.

Hong Kong Protests

The protests have grown in size, and yesterday all flights at Hong Kong International Airport were canceled. The issue has become a global concern stemming from relations between Hong Kong and China. However, if the US or UK comments, China reacts strongly. Alongside US-China relations, it’s one of the risks drawing increasing attention.

Italy Government

A snap election is being discussed, and a no-confidence vote in the cabinet could be decided as soon as today. Italy’s political uncertainty could rekindle issues like M5S (Five Star Movement) or potential EU exit, leading to euro depreciation. It also risks rising Italian bond yields and widening yield spreads with Germany. This too warrants attention.

Japan-South Korea Relations

South Korea decided to remove Japan from the list of preferred trading partners. While Korea argues that retaliatory measures contradict free trade principles, and there is a contradiction with the stance that retaliation would be taken, relations have deteriorated. Boycotts and other impacts seem to be emerging. Amid global stock declines driven by risk-off sentiment, worsening Japan-South Korea relations could weigh on the Nikkei and widen declines. The Nikkei is approaching the 20,000 yen level. Both risk-off dynamics and Japan-South Korea relations deserve close attention.

Other risks are similarly prone to sudden emergence. A risk-off environment warrants close watch.

2) Economic Indicators

In Europe, watch HICP (consumer price index) and sentiment indicators; in the UK, employment data; in the US, CPI (consumer price index); in Australia, consumer confidence. All are important economic indicators. If actual results diverge from expectations, big moves can occur; even if they don’t, outcomes can influence monetary policy. They are must-watch data.

3) Quiet Market

Japan is returning from holidays, and some people are still on Obon break. Some in Europe and the US are also on summer holidays. Liquidity may be thin, and unexpected results from the aforementioned risk-off factors or economic indicators could cause large moves. In such conditions, limit orders and stop orders may not execute neatly. It’s wise to manage risk with ample buffers.