North Korea Fires Back at 'Nonsense' From Trump; Markets Take the Hit

 | Aug 10, 2017 | 8:00 AM EDT
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In promising to unleash "fire and fury like the world has never seen," Trump is speaking North Korea's language.

And what language it is. 

Trump's warning is a "load of nonsense," a North Korean general replied to his threat, according to KCNA, the official news agency of the exile state. "Sound dialogue is not possible with such a guy bereft of reason, and only absolute force can work on him."

Trump's warnings, which North Korea notes came from the golf course, are "extremely getting on the nerves of the infuriated Hwasong artillerymen of the KPA," General Kim Rak Gyom, commander of the Strategic Force of the Korean People's Army, said.

Getting more specific about North Korea's plan to attack Guam, the artillerymen stand ready to unleash four Hwasong-12 ballistic missiles to contain U.S. forces on the island, "to signal a crucial warning to the U.S."

North Korea's latest outburst was generated by a resolution from the Security Council at the United Nations to ban trade in North Korean exports of goods such as coal, metals and seafood, which make up around one-third of its income from abroad.

Another senior official called the United States a "shameless gangster-like state" colluding with "dastards" at the United Nations, and engaging in "desperate efforts of those frightened at the might of the DPRK." That came at a the "mass rally" held in support of North Korea's threat, at Kim Il Sung Square in the North Korean capital. 

Kim Jong-un and Trump are kindred spirits trying to bully each other with threats.

"Fire and fury" echo North Korea's pledge, on different occasions, to turn both Seoul and Washington into a "sea of fire." It has also threatened "merciless sacred war" and also to strike with a "retaliatory bolt of lightning" against South Korea.

That's all according to KCNA Watch, a site that collates reports from the country that calls itself the Democratic People's Republic of Korea.

Trump's words not only mimic some of Pyongyang's Apocalyptic promises, but they also hark back to the days of the "shock and awe" promised by the U.S. military in the 2003 Iraq War.

But "fire and fury" also sounds an awful lot like "We are going to use nuclear weapons if you keep this up." The "shock and awe" strategy involved boots on the ground.

Trump appears to be making his comments on the fly. His threats came without input from senior foreign-policy and military aides, Reuters reports, and were "all Trump."

The press conference at which he unleashed "fire and fury" was, after all, supposed to be about the opioid crisis in the United States. The White house says General John Kelly, Trump's chief of staff, was "well aware of the tone of the statement" prior to delivery -- but apparently not the bluntness of the language.

So where does the strategy go from here? You've already threatened to unleash, if taken literally, weapons more powerful than those already used on Hiroshima and Nagasaki. Surely it's no coincidence that these comments are coming now, at the anniversary of the bombing of Nagasaki on Aug. 9, and Hiroshima's on Aug. 6.

Were it not for the fact that both Trump and Kim have their hands on the nuclear-bomb button, the back-and-forth language would be comical. Fans of Mr. Bean star Rowan Atkinson's show Blackadder may recall him being threatened with "a fate worse than a fate worse than death."

Besides goosing North Korea, Trump is also exerting pressure on Chinese President Xi Jinping, in an indirect way. Although North Korea is already cut off from the rest of the world, its leaders are surely most worried that the pressure will finally pay off through greater pressure from its only ally. Beijing backed these latest sanctions, with China accounting for three-quarters of all North Korea's exports and imports.

Trump and Kim probably do not know what will happen next. Having no strategy is also a strategy. Trump re-tweeted a comment from The Five that "being unpredictable is a big asset," since North Korea "knew exactly what President Obama was going to do."

But markets, as another bit of oft-repeated rhetoric holds, hate nothing more than uncertainty. Investors always, it seems to me, shake off geopolitical concerns rapidly. But unprecedented language from a U.S. president leads us into uncharted territory.

South Korea and Hong Kong are the markets most at risk, as I said yesterday, with both coming off highs. And both continued Wednesday's selling into Thursday.

Korean stocks, in the form of the Kospi index, were down 1.2% shortly after midday. They pared those losses but continued to struggle, down 0.5%, in mid-afternoon.

The Kospi set an all-time high on July 24, but has now fallen 4% since then. It's still sitting on gains of 16% for the year, but the tide certainly seems to have turned.

The Hang Seng steepened Wednesday's loss of 0.4% with a 1.7% fall in morning trade on Thursday. Sectors such as financials and real estate that rely on easy capital flows were the main losers.

The Hang Seng has never quite reached the pre-crisis high it set in 2007 -- but, as the top-performing major market in the world this year, it's getting close. The Hang Seng is up 26% in 2017. Unlike the Korean market, it has not flagged for more than a couple of days.

Could this be a turning point for Hong Kong stocks? Will Korean weakness continue? Both look likely to me as long as Washington and Pyongyang keep trying to spring verbal and even military surprises on one another. 

The spillover is also hitting other East Asian markets. Mainland Chinese stocks also dropped on Thursday, with the Shanghai composite down 0.5% in late-afternoon trade, and double that earlier in the day. Only Tokyo, down very slightly after losses the day before, was spared.

U.S. officials appear to be walking back from the precipice, toning down their language immediately after Trump's barrage. But sustained tension in East Asia will disrupt markets throughout East Asia's economies, which are not only within easy reach of North Korea's missiles but also heavily dependent on international trade.

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