Unsettling Geopolitics Crowding Out Economics
August 18, 2026
In this mid-August season of vacationing, this Tuesday saw few releases of economic data and no central bank rate announcements. In this vacuum, market attention turned to politics for guidance and and the musings of U.S. President Trump. He indicated no interest in extending the expired interim peace with Iran. Tomorrow is D-day for U.S./Canadian trade, with a fresh 50% U.S. tariff on a variety of Canadian goods to be imposed tomorrow barring a last-minute deal or unilateral reprieve from Mr. Trump. The president has also ignited fresh fear in South Korea, criticizing the need for annual joint U.S./South Korean defensive military exercises while expressing a desire for fresh talks with Kim Jong Un, North Korea’s Supreme Leader.
In response, the Korean won rose 0.6% overnight. The Kospi stock market index slumped 1.6%, and the 10-year Korean government bond yield jumped 10 basis points to 4.40%.
In other financial market action so far today,
- Support for the yen from actual and threatened intervention is being tested by market participants who want to see that gesture backed up by a Bank of Japan interest rate hike next month. The 10-year JGB yield rose two basis points overnight and, at 2.93%, stands a quarter percentage point above the level a month ago. The yen weakened 0.2% on balance and was as low as 159.78 per dollar at one point.
- The dollar also strengthened 0.2% versus the Indonesian Rupiah and Swiss franc, 0.4% relative to the New Zealand kiwi and 0.1% against the euro and sterling.
- Ten-year sovereign debt yields have climbed five basis points in Australia, four bps in France, Italy and Spain, three bps in Switzerland and Germany, two bps in the U.K. and a basis point in the United States.
- West Texas Intermediate crude oil is hovering near $85 and 0.7% higher than yesterday. Prices for Bitcoin, gold and especially silver have declined, in contrast.
- Stock markets freaked by the prospect of a prolonged future of elevated energy costs closed down 1.2% in Taiwan and Singapore, 2.5% in Japan, 0.6% in India and 0.5% in Australia. The German DAX and Paris CAC are lower but by less than 0.5%, while Nasdaq futures have sunk 1.3% so far.
The August ZEW Institute of investor sentiment toward Germany and the whole euro area, a good measure of the region’s economy, produced the most optimistic expectations in the six months since war began in Iran, with all business sectors rising above July levels. Germany has benefited from fiscal spending on infrastructure and lessening inflation fears, but a fresh concern involves the weather, characterized by heat and drought. The survey’s measures of current economic conditions remained in sub-zero territory (-61.1 in Germany’s case and -21.5 for Euroland) but were significantly better, to wit, a 13-month high in Germany and a 6-month high in the case of the whole euro area. The reading of +2.4 in Euroland inflation expectations was its lowest since February and down from back-to-back 79.0 readings in March and April.
The latest batch of British labor market statistics revealed an unchanged jobless rate of 4.9%, a second straight decline of jobless claims (down 11k in July after -6.4k in the previous month), and an uptick in in average weekly earnings growth to 4.5% overall and 3.5% excluding bonus pay. British labor productivity (output per hour) was weaker than anticipated in the second quarter, dropping by 0.8% versus the first quarter level and posting a year-on-year rise of only 0.4%.
Spain’s trade deficit of EUR 7.67 billion in June was slightly more than twice the size of the year-earlier shortfall.
Business sentiment in South Africa improved to a 4-month high in July.
U.S. international capital flow data compiled by the Treasury Department identified abundant net inflows in June of $173 billion long-term and $134 billion overall. U.S. releases later today feature import and export prices, industrial production, capacity utilization, and pending home sales.
Upcoming central banking events include interest rate announcements from Indonesia, Jamaica and Iceland tomorrow and China, Egypt and Sweden on Thursday. The annual Jackson Hole Monetary Policy Symposium hosted by the Kansas City Fed and with a theme this year of “Financial Innovation: Implications for Payments and Policy” runs from August 27 through August 29.
Copyright 2026, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British labor statistics, Euroland and German ZEW expectations index, Trump and Korea
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