Enemies Of The State

By Benjamin Picton, Senior Macro Strategist at Rabobank

Just when you thought that politics in 2024 couldn’t get any crazier, the President of South Korea declares martial law. President Yoon Suk Yeol made the declaration yesterday, justifying it as necessary to “eliminate anti-state forces” who he accused of sympathizing with North Korea. The declaration was opposed unanimously by the South Korean National Assembly in a bipartisan 190-0 vote (the balance of the 300 members were not present) as videos circulated on social media of the military surrounding the Assembly building. The Wall Street Journal reports that members had to resort to scaling fences to evade armed guards and attend the vote.

Martial law was in effect for approximately six hours before President Yoon lifted it around 4am Wednesday following the vote. The Associated Press reports that an opposition party lawmaker claimed CCTV footage showed troops moving in a way that suggested they intended to arrest the leader of the main opposition party, the Speaker of the National Assembly and even the parliamentary leader of Yoon’s own party before martial law was lifted. It now appears likely that President Yoon will be impeached and fail to see out the remainder of his 5-year term due to expire in 2027.

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— zerohedge (@zerohedge) December 3, 2024

The USD rallied almost 3% against the Korean Won before retracing substantially as the political crisis subsided. Ultimately USDKRW closed 1.6% higher on the day. Spot gold was up smalls while the Bloomberg Dollar Spot Index lost 0.08% and US 10-year Treasury yields lifted 3.5bps to 4.225%, thereby prompting a slight bear-steepening of the Treasury curve as 2-year yields remained unchanged at 4.18%.

Long-end yields may have been encouraged higher by a much stronger than expected JOLTS report yesterday. That report showed 7,744,000 job openings in October compared to a (downwardly-revised) figure of 7,372,000 in September and a consensus estimate on the Bloomberg survey of 7,519,000. Meanwhile, the San Francisco Fed’s Mary Daly said that a rate cut this month “isn’t certain” but that “in order to keep the economy in a good place we have to continue to recalibrate policy”. Chicago Fed President Austan Goolsbee was a little more explicit, saying that he expected interest rates to “come down a fair amount from where they are now” in the months ahead. All-in-all, the signal from Fed speakers this week seems to be that the December FOMC decision will hinge on the results of the payrolls report due out on Friday.

The active Brent crude future rose 2.53% to $73.65/bbl yesterday as news circulated that OPEC+ is close to an agreement to delay production cuts due to expire in January by another three months. The alliance of oil producing nations is due to finalize plans for extensions to the 180,000 bbl/day cuts at an online meeting on Thursday. If passed, this would mark the third extension to agreed production cuts as producers seek to support global prices in the face of slowing demand from China (the world’s top energy importer) and burgeoning supplies out of the United States. Compliance with agreed cuts has also been a major problem for the alliance, with a number of members thought to have been “cheating” by producing more than their agreed numbers.

Breaking international solidarity to pursue economic self-interest is certainly the current Zeitgeist. President Trump posted on Truth Social yesterday that he is “totally against” the acquisition of US Steel by Japan’s Nippon Steel. Trump said that a series of tax incentives and tariffs would instead make US steel “Strong and Great Again, and it will happen FAST!” Japan is, of course, an important defence partner of the United States.

Meanwhile, China has just announced that it is imposing export bans on Gallium, Germanium and Antimony to the United States. All three minerals are used in the production of semiconductors and have other applications in technology, metallurgy, photovoltaic cells and fibreoptics. Reuters reports that China accounts for more than 98% of the world’s supply of Gallium and almost 60% of refined Germanium. A White House spokesperson said that the new restrictions highlight the importance of de-risking supply chains and finding alternative suppliers to China, but that would presumably require diplomacy and cooperation between the United States and her allies. What will be the carrots and sticks offered to encourage new production and supply of critical minerals?

Finally, Bloomberg is this morning reporting that German Foreign Minister Annalena Baerbock has floated the possibility of NATO membership for Ukraine as part of a peace deal that could also include ceding some occupied Ukrainian territory to Russia. Ukrainian membership of NATO is likely to remain a red line for Russia considering that NATO encirclement is one of Russia’s major grievances that Vladimir Putin has used to justify his war, but it is interesting that the once unthinkable ceding of land is now being discussed openly by senior European leaders.

This is starting to sound reminiscent of the Concert of Europe realpolitik that prevailed during the 19th century. With Donald Trump set to regain the keys to 1600 Pennsylvania Avenue next month, the ability to strike a deal that safeguards vital national interests while maintaining a balance of power on the continent will be all the more important