Geopolitical risk will likely prevail - Rabobank

While the markets once again breathed a sigh of relief over North Korea, geopolitical risk will likely prevail, feels the analysis team at Rabobank.

Key Quotes

“North Korean leader Kim-Jong Un warned that Tuesday’s missile launch was a “meaningful prelude to containing Guam”, adding that his country will conduct more ballistic missile tests.”

“Meanwhile, the UN Security Council unanimously condemned, as “outrageous”, North Korea’s missile launch at its emergency meeting held on Tuesday. In its official statement the security council demanded Pyongyang not to launch additional missiles, as such actions are a threat both to the region and to all UN member states. The council also expressed “its commitment to a peaceful, diplomatic and political solution.” US Ambassador to the UN Nikki Haley stressed that the US will not allow North Korea lawlessness to continue. “Something serious has to happen,” she added.”

“In terms of a potential response to the latest actions from North Korea, the US may apply more pressure on China to force the North Korean regime to adopt a more constructive approach or at least to refrain from escalating an already tense situation even further.”

“The US is likely to use trade as leverage over China, which in turn has significant economic influence over North Korea. That said, Beijing does not have the geopolitical inventive to bring down the North Korean regime. Note that the Chinese foreign ministry reportedly stopped short of condemning the launch and called instead on all parties to show restraint and engage in dialogue.”

“Consequently, a solution to the problem will remain elusive, which implies that concerns about North Korea are likely to re-escalate in the coming weeks.”