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Gaps, gaps everywhere! With not a lot of major data on the docket, Asian session traders priced in North Korea’s nuclear tests over the weekend. Luckily for forex bulls, most of the gaps eventually got filled before the session ended.

  • Japan’s monetary base (y/y) rises from 15.6% to 16.3% vs. 15.6% expected
  • AU MI inflation gauge up by another 0.1% in August
  • AU quarterly company operating profits falls by 4.5% vs. 3.9% dip expected, 5.8% increase in Q1
  • AU ANZ job ads up by 2.0% vs. 1.6% gain in July
  • North Korea’s nuclear tests inspire risk aversion

Major Events/Reports:

North Korea’s nuclear tests inspire risk aversion

The biggest story of the hour is North Korea conducting its sixth – and allegedly the most powerful – nuclear test over the weekend.

The regime confirmed that it had tested a powerful hydrogen bomb that can be loaded on to an intercontinental ballistic missile. The explosion was accompanied by a 6.3-magnitude earthquake about six miles from North Korea’s Punggye-ri nuclear test site that was picked up by China, South Korea, and the U.S.

The plot thickens as traders wait for responses from key officials. U.S. Defense Secretary James Mattis already warned that “Any threat to the United States or its territories – including Guam – or our allies will be met with a massive military response, a response both effective and overwhelming.”

Meanwhile, South Korea has showed some of its military teeth by conducting drills that involved launching ballistic missiles in a simulated strike against North Korea’s nuclear test site.

All eyes will be on the emergency U.N. Security Council meeting requested by the United States, Japan, Britain, France and South Korea. The 15-member Security Council will meet at 10 a.m. (2:00 PM GMT) today.

Not surprisingly, the escalation of geopolitical conflicts weighed on the equities markets.

  • Nikkei is down by 0.97% to 19.511.50;
  • Australia’s A SX 200 is down by 0.50% to 5,695.80;
  • Hang Seng is down by 0.39% to 27,845.00, and
  • Shanghai index is down by 0.07% to 12,062.92.

Australia’s data releases

ANZ’s job ads report showed a 2.0% growth for the month of August, marking the sixth consecutive monthly increase and the fastest pace since January 2011.

Meanwhile Australian Bureau of Statistics (ABS) showed that company profits dipped by 4.5% in Q2 2017 after gaining by 5.8% in the previous quarter.

A closer look tells us that mining profits fell by a whopping 11.5% during the period thanks to the decline in commodity prices. More importantly, inventories fell by 0.4% instead of rising by 0.3% as expected, and hinted of a weaker-than-expected GDP for the economy during the period.

Luckily, wages and salaries also increased by 1.2%, the fastest pace in two years. This is good news for household consumption, which makes up about 57% of economic activity in Australia.

Major Market Mover(s):

JPY

The low-yielding yen gapped higher against its major counterparts as traders priced in North Korea’s weekend nuclear tests. Traders tried to close them gaps, but ultimately fell short by the end of the session.

USD/JPY opened at 109.53 (vs. Friday’s close of 110.23), hit a high at 109.93, and closed at 109.82
EUR/JPY opened at 130.17 (vs. Friday’s close of 130.83), hit a high at 130.62, and closed at 130.46
AUD/JPY opened at 87.07 (vs. Friday’s close of 87.84), hit a high at 87.56, and closed at 87.41.

Watch Out For:

  • 8:00 am GMT: Spain’s unemployment change (16.3K expected, -26.9K previous)
  • 9:30 am GMT: Euro Zone Sentix investor confidence (27.4 expected, 27.7 previous)