North Korean Drama Over- CPI Meets Estimates

North Korean Summit Ends

The stock market didn’t have much of a reaction to the North Korean summit on Tuesday in Singapore, but that could be considered a good thing as the missile launches that occurred last year won’t return and hurt stocks in the intermediate term. I was wrong to imply everything would be done prior to this meeting, but correct to imply not much other than pleasantries would occur at the actual meeting. The new reality, which is now clear, is that this was the first step towards negotiations between the two nations. The hope is further meetings can hash out the issues over time. The problem is it’s far from a guarantee that this first step will lead to a peaceful Korean peninsula.

The biggest news coming from the summit was that the regular military exercises America holds with South Korea will be ended because they are expensive and provocative. Furthermore, Trump welcomed Kim to a meeting at the White House in due time. In return, North Korea promised to denuclearize; the one caveat is it wants the entire peninsula to do so. Secretary of State Mike Pompeo will be working on further negotiations to be sure North Korea fulfills its promises. Even though North Korea is said to be destroying a major missile engine testing site, the sanctions on the country remain.

(Click on image to enlarge)

Peace is far from a guarantee, but future flare ups have been taken off the table for now. The table above shows the recent increase in missile tests in the past couple years which has riled markets. This means there’s no upside catalyst for stocks, but there’s also no downside catalyst either. That’s good news because American equities don’t need North Korea to boost prices; they have strong earnings growth and a strong economy to do that.

CPI Meets Estimates

Even with the Fed meeting, ECB discussions about ending QE, and the North Korean summit, the most important event of the week may have been the May CPI report. All of the numbers came in as expected. Month over month CPI was up 0.2% and month over month core CPI was up 0.2%. As you can see in the chart below, year over year CPI was up 2.8% and year over year core CPI was up 2.2%. The cycle peak is 2.3% core CPI growth, so core CPI is much closer to its peak than core PCE. That point will be corrected if the May PCE report, which will be released on June 29th, comes in better than expected.

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Moon Kil Woong 7 months ago Contributor's comment

Sad. Too much was given up with nothing really from N. Korea. They shuttered their old test site because it caved in and aren't doing more tests probably because they need more equipment to make more missiles which a resumption of trade will make easier to sneak more material to them to make them.

The last time the US let up on North Korea got Americans killed in the Korean war. With nukes, this is an even bigger issue. I'm afraid we will regret the years of dilly dallying with N. Korea. They will export their weapons to Iran and others. The world is more dangerous not safer.

Ayelet Wolf 7 months ago Member's comment

The Korean war started almost 70 years ago! I don't think you can use that as any sort of analogy here. Everything is different.

That being said, I agree that #Trump had nothing to do with Korea coming to the negotiating table. Years of crippling sanctions and their own failed nuclear experiments have forced them to give up and negotiate. The North Korean people are starving, and attaining nuclear capability has proven to be a pipe dream for them. Kim Jong Um is actually quite savvy to see the writing on the wall and to instead use nuclear abandonment as a negotiating tactic to end sanctions and improve the state of his country.

Whether he truly believes in peace is irrelevant. He's realized he needs to throw in the towel. Many a dictator failed to recognize this. And I for one am hopeful that North Korea will realize quite quickly that peace is far more lucrative than war.

Beating Buffett 7 months ago Member's comment

Moon Kil Woong, you wrote "Too much was given up with nothing really from N. Korea." Unless you read something verifiable that I did not, I don't believe we're privy to what was negotiated behind closed doors. However, based on the news I've seen, so far there has only been a commitment on North Korea's part to abandon it's nuclear ambitions and continue negotiations. Plus, unlike the sham of an Iran deal where Obama let Iran inspect it's own nuclear sites (a total joke), N. Korea will allow international inspectors in.

Bill Johnson 7 months ago Member's comment

Don't get your hopes up about peace with North Korea any time soon. Apparently they launched a cyber attack against us within hours of the summit ending:

Dan Richards 7 months ago Member's comment

I read the article. Allegedly behind the the cyber attack. The timing is ridiculous. I wouldn't be surprised if #Putin was behind this to mess up the summit. Mark my words!

Moon Kil Woong 7 months ago Contributor's comment

Will is the issue. Former agreements with North Korea were supposed to allow inspections and prevention of them getting nuclear material in the first place. What always happens is they get the easement first and then don't abide by the agreement. That's why the stance has been that they do their part first.

Regarding the Korean war. Yes, it was a long time ago. However, that is still the mindset in North Korea. Their twisted history makes them think that it worked.

I would hope that he would care about his starving population. The way to do that is to disarm. That has not stopped him and is not likely to. Sadly, N. Korea can walk away with eased tensions, a PR boost, relaxation of trade barriers with less pressure on China which will make it easier not harder for them to build more missiles. What the US gets is promises that are likely to be empty and/or deceptive and the discontinuation of a test site that is already broken and being decommissioned.

Last, Iran and North Korea are linked. They have and will continue to work together on nuclear weapons and missiles. One needs to shut down N. Korea now not later. We should have done more long ago.

Last, sadly there is quite enough out on what has gone on at the talks and sadly, it's th Republicans that are upset for a good reason. Stopping the training is especially in poor taste. It was a not so subtle tool to prevent N. Korea from thinking it has the upper hand which is dangerous. The training is also important to helping save lives if a war does break out there. Without it we are weaker and South and North Korea know it. No foreign power should be able to influence our military behavior let alone a tin pot dictator that is trying to threaten the US with nuclear missiles.

Black Widow 7 months ago Member's comment

Sadly, the North Korean regime is not sane. They care more about self preservation than their own people.

Angry Old Lady 7 months ago Member's comment

I believe you are correct Black Widow. I hate to say this but have you noticed how fat Kim Jung Un is while his people are literally starving to death?!! The man is 5'8" tall and weighs over 300 pounds while children are dying from not having enough to eat.

Beating Buffett 7 months ago Member's comment

You are probably correct about much of this. But I believe North Korea is only linked with Iran out of necessity and a lack of other options. If they feel aligning with the US is in their best interests, they'll do that instead.