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Secretary of State Rex Tillerson takes a bit of the heat out of the Korean crisis, Federal Reserve speakers fret about inflation disappointments and Pimco joins the anxious chorus of concern that equities and junk are overdone. Here are some of the things people in markets are talking about.

Safety Dance

Tillerson said the U.S. is engaged in a very active diplomatic effort to halt Kim Jong Un’s pursuit of a nuclear weapon that could strike the U.S. mainland. He said North Korea should be looking for talks, adding too that “Americans should sleep well at night, have no concerns about this particular rhetoric of the last few days.”  President Donald Trump tweeted that  the U.S. atomic arsenal is more powerful than ever, while Defense Secretary Jim Mattis said in a statement that North Korea “should cease any consideration of actions that would lead to the end of its regime and the destruction of its people.”  Meanwhile, the two nations most at risk when it comes to the hermit kingdom largely brushed off Trump’s threat to unleash “fire and fury.”  An unidentified official at South Korea’s presidential office was cited as saying there’s no “imminent crisis,” and a senior Japanese official said there’s no mobilization for a military strike, with very few people in the government taking Trump’s comments seriously.


Time to Shine

The barbarous relic, gold, is glittering brightly during the geopolitical turmoil, jumping more than 1 percent Wednesday for its steepest gain since May. The Swiss franc was the currency of choice for safety seekers, with the yen only advancing moderately as investors decided Japan’s proximity to the potential action made it a dubious refuge. Emerging market stocks retreated along with risk proxies including the Aussie and the rand. Treasuries pared their gains and U.S. equities pulled back from steep declines following Tillerson’s soothing efforts, though it was hard to find anything but red on stock-market screens.

Deflated Policy Makers

A pair of Federal Reserve officials sounded a touch more fretful at the inability of strong labor markets to deliver price gains of the magnitude the central bank wants. St. Louis Fed President James Bullard warned that failure to get inflation to the central bank's 2 percent goal undermines the target’s credibility, echoing some colleagues. ``The misses add up over time,’’ he said. Separately, Chicago Fed chief Charles Evans stated it would be reasonable to announce the start of balance-sheet reduction next month, but cautioned disappointing inflation data may delay rate hikes.

Two More Years

The Reserve Bank of New Zealand also sees no signs of strengthening price gains. It held its benchmark interest rate at a record low of 1.75 percent and said it expects to keep it there for two years amid weak inflation. The central bank’s surprisingly cautious tone in recent months has been justified by data since that showed consumer-price gains weaker than forecast and economic growth disappointing. RBNZ Governor Graeme Wheeler may also be reluctant to flag future rate increases because that could boost the New Zealand dollar and further damp inflation. Speaking of which, Thursday’s statement may not have been gloomy enough, as the kiwi climbed straight after, consolidating the gains of about 7 percent against the greenback since the RBNZ’s last set of forecasts on May 11.

Warning Shots

Two of the biggest money managers are telling investors it’s time to dial back on risk.  Pacific Investment Management Co. says U.S. stocks and high-yield debt should be pared in favor of lower-risk assets, such as Treasuries and mortgage-backed securities, according to an allocation report by the company, which oversees more than $1.5 trillion.  It deems that “asset prices generally are fully valued.’’ T. Rowe Price Group Inc. had a similar view, cutting the stock portion of its asset-allocation portfolios to the lowest level since 2000. The Baltimore-based money manager said it also reduced its holdings of high-yield and emerging market bonds.

What we’ve been reading

This is what caught our eye over the last 24 hours.

  • China’s hedge fund industry greets global managers with promise, peril
  • Noble’s massive writedown is proving Iceberg right
  • CEO of Commonwealth Bank of Australia, the nation’s largest, gets grilled over money-laundering case
  • Trump’s nuclear firepower is the same as it was when he took over from Barack Obama
  • The FBI searched a home belonging to Trump’s former campaign chairman
  • Wall Street investment bankers can expect hefty bonus gains this year; traders may get little 
  • Goldman Sachs Group Inc. says it’s getting harder for institutional investors to ignore cryptocurrencies 
  • Sega is embracing rogue fan programmers with a retro Sonic the Hedgehog game sequel

 

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