Little Boy
Happy Friday,
On 6 August 1945 (75 years ago) a US bomber dropped the uranium bomb called "Little boy" above the city if Hiroshima in Japan. Three days later a second nuclear weapon was dropped on Nagasaki. Has the world learned from the past? and are we able to prevent this dreadful event from happening again?
It seems to be positive news that the number of nuclear warheads went down from around 70K at the peak of the cold war to estimated 14k today mainly held by the USA and Russia. However the global system of nuclear arms treaties is in danger. The INF treaty has been revoked by the US Government and the ongoing negotiations surrounding the new START treaty have been difficult. All this development has forced the scientist behind the famous Doomsday Clock closer to midnight than ever before. The main concern is the danger of a nuclear war through miscalculation. After the Cuban missile crisis in 1962, which brought the world to the brink of nuclear war, the U.S. and the Soviet Union installed special communication channels. Nowadays due to Donald Trump's foreign policy this communication channel doesn't really exist any more and the lack of dialogue is being used by other countries to upgrade there nuclear options.
Another problem of disarmament is the fact that some of the new players on the field are not included in current nuclear weapons agreements such as China, Israel, North Korea and Pakistan. Therefore Donald Trump is right if he is demanding a renegotiation which includes all nuclear states but cancelling a old "working" contract with out a replacement is a dangerous gamble. On the other hand the upgrade of nuclear and non-nuclear weapons had a positive impact on the companies which are producing these weapons such as Honeywell International, Lockheed Martin and Northrop Grumman. All of whom have outperform the S&P 500 in the last year. "Another win" for Donald Trump's America first policy.
True peace and stability can only be archived by open communication and trust among all stake holders however with the current national mood in different countries this could be the biggest challenge.
My thought of next week:
New Zealand’s handling of the Coronavirus pandemic has been received very positively by the market, still there are increasing concerns of a second wave in the country as well.
This week Q2-job numbers, which come in slightly worse then expected, as the two year higher then expected inflation expectation, will put higher pressure on the central bank's meeting next week due to her dual mandate for managing prices and employment. Still the market is not expecting any changes of the current rate level but rather more a statement to act fast if needed.