US President, Donald Trump and North Korean President, Kim Jong-un’s Singaporean summit made headlines around the world yesterday and lifted risk appetite in the markets. Although the meeting was short on ink-to-paper commitments it seems to have opened doors to more friendly and open dialogue between the countries going forward, possibly laying the path to a denuclearised Korean peninsula at some point in the future. Although Kim is unlikely to lay down his nukes anytime soon the fact that the two leaders met at all is progress and further talks, possibly in Washington, could be on the horizon before the end of the year.
President Trump is reported to have called off future US/South Korean military drills which have long been a source of angst for North Korea. The meeting saw stock markets around the world rally and a key barometer for risk, USD/JPY, has got a foothold above the key 110 handle. Data-wise US CPI printed 2.8% y/y its highest level in six years adding to calls for the Fed to raise interest rates four times this year. Today’s key event will be the Feds interest rate decision which is due at 7pm this evening. Rates are all but guaranteed to be hiked 25 bps however markets will be keeping a keen eye on the message Fed Chair Jay Powell gives on future moves. Three hikes this year is still the median expectation from markets however with inflation running hot, a tight employment environment and a descaling of US/North Korean tensions the prospect of four hikes has grown over recent days.