The Korean War Is Now Over And The World Is (Almost) At Peace

“The question now is whether the commitment will lead to lasting change. Previous agreements have collapsed over inspections, weapons tests and…”

from Zero Hedge

Shortly after North Korean leader Kim Jong Un and South Korean President Moon Jae-in agreed on Friday to finally end a seven-decade war this year, and signed a declaration to pursue the “complete denuclearization” of the Korean Peninsula (without however announcing any concrete steps to dismantle the North’s nuclear programs), President Trump quickly chimed in on twitter in a less than subtle reminder to his followers where the credit for the historic summit lies.

“KOREAN WAR TO END!” Trump tweeted Friday. “The United States, and all of its GREAT people, should be very proud of what is now taking place in Korea!”

As Bloomberg reported earlier, Kim and South Korean President Moon Jae-in embraced after signing the deal during a historic meeting on their shared border, the first time a North Korean leader has set foot on the southern side. They announced plans to formally declare a resolution to the war and replace the 1953 armistice that ended open hostilities into a peace treaty by year’s end.

The question now is whether the commitment will lead to lasting change. Previous agreements have collapsed over inspections, weapons tests and disputes over economic aid. Much of the agreement mirrors previous deals between North Korea and Moon’s liberal predecessors. It appeared aimed at restoring cooperation that had deteriorated over the past decade.

“We have agreed to share a firm determination to open a new era in which all Korean people enjoy prosperity and happiness on a peaceful land without wars,” Kim said, in his first remarks in front of the global press since taking power in 2011. The two sides “confirmed the common goal of realizing, through complete denuclearization, a nuclear-free Korean Peninsula.”

Still despite the bombastically ambitious proclamation, some were skeptical:

“The commitment to ‘complete denuclearization’ is ambiguous, and subject to different interpretations,” said Youngshik Bong, a researcher at Yonsei University’s Institute for North Korean Studies in Seoul. “It can be interpreted as North Korea getting rid of all warheads, or North Korean demands on the U.S. military in South Korea.”

Other analysts added that the won would get only a limited boost from plans by the two Koreas to declare an end to their seven-decade war, as investors wait to see how that translates actual actions and an economic dividend. Meanwhile, expectations that the talks will contribute to peace and denuclearization on the Korean Peninsula had been priced into the won in the past few weeks.

Here are some excerpts from analyst “hot takes” on what today’s historic announcement really means:

INTL FCStone (Mingze Wu, FX trader)

  • Regional stability is definitely bullish for KRW and Kospi in general, however the impact may not be lasting
  • This is similar to when the North Korean nuclear tests didn’t result in lasting KRW weakness; this development is unlikely to lead to a new trend for KRW
  • Ultimately, it’ll still be USD strength, the U.S. 10-year Treasury yields, and broad global risk appetite that will drive KRW and Kospi
  • That being said, this is the first step for the two Koreas to work together economically in the future; should North Korea open up fully, there’ll be an influx of workers available for South Korea and consumers in the North that will buy South Korean goods — this can only mean good things for KRW and Kospi; however still very far from this end stage
  • Key levels to watch are 1,070 and 1,060 for the won

Mizuho Bank (Vishnu Varathan, head of economics and strategy)

  • The Korean peace agreement may provide only a limited boost to the South Korean won as the economic benefits are unlikely to be realized immediately
  • Markets also had previously preferred to react to the North Korean threats via the options and derivative markets which are more cost-effective for hedging; hence, the impact on the spot from the peace deal will be limited

OCBC (Terence Wu, economist)

  • Remains skeptical that the peace declaration alone would impart structural direction to the KRW
  • Continues to watch if this general sense of optimism would lead to a sustained improvement in bond and equity inflows into South Korea
  • Near-term movements should be driven by broad USD strength predicated on yield differential arguments

SK Securities (An Young-jin, economist)

  • The atmosphere is definitely favorable for KRW, however the currency probably won’t gain further from the current level unless specific details on denuclearization is revealed
  • Had previously forecast USD/KRW to move in the range of 1,050-1,100 this year; says there are no changes to his expectations
  • KRW has already priced in positive developments in the talks since April
  • In the past, movements in KRW that was caused by geopolitical issues were mostly temporary

Source: Bloomberg

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Editor’s Note: Additional coverage of the historic event, via various Twitter accounts: