North Korean Kim's Death Triggers Save Have Flow to Dollar

Dollar spikes higher as the week starts on news of North Korean Leader Kim Jong Il's death. Geopolitical tensions in East Asia, in particular the Korean peninsula, could increase. Risk aversion triggered broad based decline in Asian equities. Investors are uncertain on how long would Kim Jong Un (Kim Jong Il's son) stay in power, the flee of refugee from North Korea to nearby countries including South Korea and Japan and possibility of reunification of the two Koreas, which may cause instability in the region. Japan Prime Minister Noda will hold an emergency security meeting today. A crisis management team on North Korea has been set up today so as to verify the announcement of Kim's death and to gauge its implications.

Euro also remains soft in response to last week's downgrades. Fitch Ratings lowered France's credit outlook to negative despite affirmation of the AAA rating. It warned that credit ratings of Belgium, Spain, Slovenia, Italy, Ireland and Cyprus may be cut. Meanwhile, Moody's cut Belgium by 2 notches to Aa3, with a negative outlook, on Friday, citing the contingent liabilities from the Dexia bailout, sluggish economic growth and increasing borrowing costs were major threats of the country's debts.

Eurozone finance ministers will hold a conference call today on channeling additional EUR 200b through IMF in bilateral loans. It's believed that the fund will include EUR 150 from Eurozone countries and another EUR 50b from non-Eurozone EU states. UK will be asked to contribute EUR 30.9 and becomes the second biggest contributor next to Germany and level with France. Meanwhile, there will also be discussion on the EUR 500b permanent bailout fund ESM on the voting mechanism to replace unanimity.

PBoC's data showed that capitals continued to flow out of China in November as the central bank and financial institutions sold a net $4.4b worth of foreign exchange. The overall foreign exchange holdings stood at around $4T. November's fall, combined with October's decline was the first back-to-back drop in holdings for more than a decade. Economists expect capital outflow to continue into early 2012 while there are talk of reversal in yuan appreciation in near term.

On the data front, New Zealand consumer confidence dropped to 101.3 in Q4, NBNZ business confidence dropped to 16.9 in November. UK rightmove house price dropped -.7% mom in December. Looking head, Eurozone current account, Canadian wholesale sales and US NAHB housing market index will be released.