Tensions Mount in Asia; North Korea Prepares for Combat; South Korea Won Sinks to 8-Month Low; Futures Sink, Nikkei Hammered Again

Smack in the midst of a "global recovery" tensions are heating up in Asia. Please consider Kim Jong II Orders Military to Get Ready for Combat

North Korean leader Kim Jong II ordered the country?s military to get ready for combat in a message televised nationwide last week following South Korea?s announcement that North Korea torpedoed the South?s warship.

South Korea?s President Lee Myung Bak said yesterday the country will push for United Nations censure against North Korea for the March 26 sinking of a naval ship, which killed 46 sailors. A multinational team concluded on May 20 that North Korea fired a torpedo to split apart the 1,200-ton Cheonan.

Tensions are rising in the Korean peninsula following the report, with both sides threatening counter-measures should they come under attack. South Korea plans to define North Korea as its ?main enemy? when it maps out military strategy, Yonhap reported today, citing a government official it didn?t identify.

South Korea?s Won Sinks to 8-Month Low

Inquiring minds may be interested to note South Korea?s Won Sinks to 8-Month Low on Tensions With North.

South Korea?s won slumped to an eight-month low on growing hostilities with the North over the sinking of one of the South?s warships with the loss of 46 lives.

The U.S. yesterday announced plans to conduct joint anti- submarine exercises with South Korea as ?a result of the findings of this recent incident.? Japan will consider imposing financial sanctions on North Korea, Finance Minister Naoto Kan said at a news conference in Tokyo today.

?We won?t see the bottom of this fall until we hear some good news on North Korea,? said Cho Hyun Seok, a currency dealer at Kookmin Bank in Seoul. ?The won?s exchange rate can go as high as 1,260 won per dollar.?

The military exercises are among steps the U.S. and South Korea are pursuing, including possible further United Nations sanctions, in response to the March sinking of the 1,200-ton Cheonan. The U.S. and South Korea say evidence shows the explosion was caused by a North Korean torpedo.

Asian Stocks Fall to 10-Month Low, Won Dives, Commodities Drop

Please consider Asian Stocks Fall to 10-Month Low, Won Dives, Commodities Drop

The MSCI Asia Pacific Index dropped 2.2 percent to 109.82 as of 12:09 p.m. in Tokyo, set for its lowest close since July 30. Standard & Poor?s 500 stock index futures lost 1.3 percent. The won plunged to a 10-month low and the nation?s stock benchmark slumped 3.4 percent. The euro fell for a second day against the yen and the dollar. Crude oil slipped below $70 a barrel in New York and copper declined for the first day in four.

South Korea?s benchmark Kospi stock index plunged 3.7 percent to 1,546.90. The gauge has fallen 11 percent from its recent high of 1,752.20 reached on April 26 and has entered a correction, defined as a decline of more than 10 percent from a peak.

Asia Pacific

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The above chart shows it is a sea of red in Asia.

However, close inspection of the futures market shows it is a sea of red everywhere. S&P 500 futures are down 17 points, over 1.5% as I type, and Nasdaq futures are also down 1.5%, 27 points.

This can change overnight. but right now the stock market does not seem too excited by war prospects. The beneficiary should be easy to guess. US treasuries are flying high.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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