Tensions in the Middle East have escalated, sparking a risk-off tone in markets. The US has launched a second round of strikes on Iran last night, after a purported Iranian downing of a US military helicopter earlier this week. Iran has also launched retaliatory strikes against US bases. Ominously, Trump warned Iran that it will “pay the price” for dragging out talks, and his rhetoric could mark a restart of forceful US military actions. There is an acute risk of more tit-for-tat responses that will leave the ceasefire in tatters. The USD is likely to stay bid on safe haven demand, and risk assets such as equities could see a pullback.
Oil-sensitive Asian currencies such as INR, IDR, and THB may be pressured lower if energy prices were to jump on renewed tensions. Trump claimed that 200 ships with more than 100m barrels of oil have sailed through the Strait of Hormuz, helped by a secret US mission started last month. A breakdown in the ceasefire now could endanger shipping again, while US military intervention on Iranian shores looks too costly to consider.
Further weakness across JPY and KRW could trigger more policy intervention. USD/JPY has bounced above the mid-160 level that triggered market intervention in late April-May, though speculative JPY selling should be somewhat restrained by a likely BOJ rate hike next week. Extreme USD/KRW moves, with the cross touching 1560 last week, has also triggered stern rhetoric from authorities that the government will not tolerate excessive volatility or one-sided market movements. Yesterday, the BoK and FSC started inspection of banks to determine if there was improper trading that destabilized the FX market, which is a strong signal to curb speculative positions against the KRW.
Quote of the day
“If you set out to be liked, you would be prepared to compromise on anything at any time, and you would achieve nothing.”
Margaret Thatcher
June 11 in history
In 1987, Margaret Thatcher became the first British Prime Minister in 160 years to win a third consecutive term.
Topic
GENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates, Digital Assets or Commodities)[1]
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
[1] This disclaimer may not apply if the applicable assets fall within the definition of 'financial instruments' that are set out in Article 2(1) EU MAR (e.g. financial instruments that are traded on a regulated market, MTF or OTF, etc.). Section C of Annex I of MiFID2 specifies these 'financial instruments'.