How to trade the Trump-Kim US-North Korea summit

Donald Trump’s unprecedented meeting with North Korea’s dictator Kim Jong-Un on 12 June 2018 is shrouded in uncertainty. What could the summit mean for the markets?

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Source: Bloomberg

US President Donald Trump is expected to meet with the Supreme Leader of North Korea, Kim Jong-Un, in Singapore on 12 June 2018. If the summit goes ahead, it will be the first meeting between the countries’ two leaders since the Korean War – quite remarkable given how tensions escalated towards the end of last year.

But with uncertainty still surrounding the summit itself – including its objectives and timetable – it is not yet clear what will happen when Trump comes face-to-face with the man who once called him a ‘mentally deranged US dotard’, or what the meeting’s outcome will be. Here’s what you need to know to be ready to trade.

How could the North Korea-United States summit affect the markets?

Predicting how the markets will react to the Trump-Kim summit is not a straightforward process, as the event is without precedent in recent history. There have been few – if any – proxy events that could provide a meaningful comparison. Additionally, it is not known what Kim wants in return for the denuclearisation he promised after April’s summit with his South Korean counterpart, President Moon Jae-In, or what concessions Trump is willing to make.

However, let’s put these (major) caveats to one side for the moment, and look at how the markets could shape up in response to the summit:

Forex

Currencies of countries that could be negatively impacted by conflict with North Korea – such as those of the US, China and South Korea – could rise if the meeting ends with a peace deal, as this would likely signal the end of the uncertainty that has surrounded the situation over the last few months (read more about how the US and North Korea impact the markets). However, those same currencies are at risk of a fall against other major currencies if proceedings deteriorate, as a stalemate would likely signal a return to recent tensions.

Interestingly, the yen has continued to act as a safe-haven currency as the situation has developed – even rising in response to nuclear tests – despite the possible threat to Japan, so could fall if there is a positive outcome from the meeting.

Watch: EUR/USD, GBP/USD, USD/KRW, EUR/JPY and GBP/CNH

Commodities

Investors often flock to safe-haven commodities like gold and silver in terms of uncertainty, so both could fall if there is a positive outcome from the summit. This is what happened in April, following the North-South summit and Kim’s pledge to seek a complete denuclearisation of the peninsula and a formal end to the Korean War. However, if Kim appears prepared to backtrack on his promises, or the meeting appears to be going nowhere, money could flood into safe havens and send them skywards once again.

Watch: gold, silver and platinum 

Bonds

The price of US bonds rose in response to the escalating tensions, but have fallen sharply since the North Korean leader agreed to meet South Korea’s president in late March. They could continue to fall in advance of the Trump-Kim summit, provided things appear to be progressing smoothly, with a sharp fall if the outcome of the summit is favourable to the US. Of course, the reverse is likely to be true if talks are derailed or the meeting ends in a stalemate.

Watch: US Treasury Bond and US 10-Year T-Note Decimalised

Stocks and indices

Fears over North Korea’s relationship with the West have caused various indices – including the US 500, FTSE 100 and Japan 225 – to fall on several occasions over the last nine months. However, both the S&P 500 and FTSE 100 failed to respond when North Korea announced its plan to abandon its nuclear weapons programme, suggesting that these indices may be more likely to react to a negative outcome from the summit than a positive one.

Watch: S&P 500, FTSE 100 and Nikkei 225

When to trade Trump’s North Korea summit

With many details of the upcoming summit yet to be announced, there will be ample opportunity for traders to react to developments and place trades in anticipation of price movements. The following events in particular could be critical:

Meeting timings and logistics

Though the summit is expected to happen in Singapore on 12 June 2018, final details are yet to emerge and a cancellation remains a very real possibility. Trump has said ‘if we don't think it's going to be successful...we won't have it’, showing that he needs to be fairly sure of a positive outcome to commit to meeting Kim.

With this uncertainty already priced into the markets, they could move in response to anything that signals that the meeting is more than likely to ahead, such as the announcement of the summit’s timetable.

Rhetoric in build up

Since North Korea accepted South Korea’s invitation to the Winter Olympics in Pyeongchang, both Trump and Kim have dialled back some of the more aggressive rhetoric. Trump commented in January that he has a ‘very good relationship’ with the dictator, who he had previously called ‘a madman’, while Kim has promised to pursue complete denuclearisation following his meeting with South Korean President Moon Jae-In.

However, if the rhetoric changes in advance of the meeting, the markets could move in anticipation of a negative outcome or even a cancellation. Pay attention to the news, White House press briefings, and Trump’s Twitter feed, which are likely to prove the best barometer of what we can expect.

The summit itself

The most unpredictable element of the entire affair is arguably the summit itself, as Trump has said that he ‘will walk out’ of the meeting if it’s ‘not fruitful’, and it is not yet known what Kim expects in return for greater international cooperation. Will he demand an end to sanctions, formal recognition of the North Korean government, or a guarantee against future US military action? And, if so, are those concessions Trump will be willing to make?

Whatever happens, the markets are likely to move once the outcome is announced. Pay attention to events throughout the day, especially the press conferences – or joint press conference – after the leaders have spoken in private.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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