US and North Korean aggression is the main driver today - BBH

The bellicose rhetoric from the US and North Korean officials is the main driver today and analysts at BBH would qualify that assessment by noting that first, the market moves are rather modest, suggesting a low-level anxiety among investors. Second, that the pre-existing trends have mostly been extended, he further add.

Key Quotes

“US intelligence has concluded that North Korea has recently developed the capability to produce a nuclear warhead that would fit on to the intercontinental ballistic missile that it has been developing.  This, coupled with claims that North Korea was moving to make active defensive weapon systems, spurred an escalation of rhetoric between the US and North Korea.  President Trump threatened North Korea with a " fire and fury" as the "world has never seen."  North Korea reportedly responded by revealing that it was considering a preemptive strike against US forces in Guam.”  

“The US has threatened to use force to deter North Korea, but it prefers to use multinational efforts and sanctions.  Despite the rhetoric of unilateralism, the Trump Administration is attempting to find an alternative to a US-North Korea confrontation.  China has taken modest steps, but it has no desire for unrest on its borders, and it fears that a united peninsula would be dominated by South Korean interests, which means the US.”  

“There have been many op-ed pieces comparing the current situation with the Cuban Missile Crisis.  This tends to be cited by those who sense the Rubicon is imminent and want decisive action now.  On the other hand, the experience with Iran may be more apropos.  It is a marathon, not a sprint.  There was the creation of an incentive structure that was ultimately persuasive for Iran.”  

“There is also a good reason why time is on America's side.  Its missile defense system continues to become more sophisticated.  Remember, the US spends roughly as much on defense as the rest of the world combined.  South Korea has begun installing a US missile defense system and this has antagonized China, which sees it as a forward projection of US power to its border.”