Spanish PM Rajoy has miscalculated in Catalonia. The independence genie can’t be recorked. This adds a new layer of political risk to Europe. Having cut back our long euro positions post the German election, we now close out our remaining longs versus the US dollar and add Spanish bond shorts.

Ultimately a nuclear North Korea is not acceptable. In the absence of a diplomatic miracle, the US will have to take military action to defang the regime. But whether the US exercises its military option or not, the crisis will still result in a conventional and nuclear arms race in the region. This will come at considerable economic cost given that, until now, most Asian countries have relied upon the US defence umbrella. We remain short Korean won versus the euro and underweight Korean assets.

Politics rarely defines market trends, but it does alter risks in the shorter term. There is a clutch present in Europe now, which should take some of the steam out of the single currency’s rally. We reduce our long euro positions versus the US dollar accordingly. We also pare our long euro exposure against sterling.