Barely had the market digested news of the latest, 6th - and this time allegedly thermonuclear - test by North Korea (with the South Korean Kospi cutting initial losses of as much as 1.6% in half on yet another BTFNWD ramp), when Yonhap reported that South Korea's spy agency said it had detected that North Korea is making preparations for a possible intercontinental ballistic missile launch, a move that would further raise tensions a day after it conducted its sixth and most powerful nuclear detonation.
Chang Kyung-soo, acting chief of the defense ministry’s policy planning office, told lawmakers on Monday that North Korea was making preparations for a missile firing, according to Bloomberg while Yonhap adds that South Korea's spy agency said there was a chance the North could fire an ICBM into the Pacific Ocean, saying that the isolated state was able to conduct a nuclear test at any time. Gen. Jang didn’t say what the signs of activity were, nor did he give a time frame for a possible launch. But many experts have been preparing for a weapons test around Sept. 9, when North Korea marks the anniversary of its foundation in 1948.
His assessment was echoed by South Korean intelligence officers, who said North Korea could test launch another ICBM toward the northern Pacific Ocean or a submarine-launched ballistic missile, according to lawmakers who attended a closed-door legislative meeting on Monday. The intelligence officers also said North Korea could conduct further nuclear tests at any time, based on construction work on two tunnels at its test site that appear to be near completion, these lawmakers said.
The National Intelligence Service (NIS) told lawmakers in a closed session that Pyongyang may lob the missile around the anniversary of the regime's foundation slated for Saturday or the establishment of the ruling Workers' Party of Korea on Oct. 10.
North Korea fired ballistic missiles, including two ICBMs fired in July, at a lofted angle to prevent them from crossing over other countries including Japan. But Pyongyang lobbed a Hwasong-12 intermediate-range ballistic missile that flew over Japan last week.
"There is a possibility that the North would fire an ICBM on a standard trajectory," the NIS was quoted as saying by lawmakers.
Separately, Gen. Jang said the U.S. and South Korea are in talks about deploying an aircraft carrier or stealth bombers to South Korea as part of the response to North Korea’s recent actions. Top South Korean officials had said in recent days that the two allies were in discussions about the deployment of “strategic assets” to the Korean Peninsula. At the time, officials didn’t elaborate on what strategic assets they were considering, but the phrase typically refers to aircraft carriers, bombers or nuclear weapons.
The NIS also said that more analysis is needed to verify whether the North detonated an electromagnetic pulse-based bomb or a hydrogen bomb during its nuclear test, according to lawmaker. "North Korea claimed an H-bomb test, but we are analyzing it on the assumption that there could be three possibilities -- a hydrogen bomb, an atomic detonation and a boosted fissile weapon," the agency was quoted as saying.
It said that Pyongyang appeared to try to show that international sanctions are not working and to express its complaints against China or Russia by timing the detonation with a Beijing-hosted five emerging nations BRICS summit and Russia's economic forum slated for later this week.
"The North also seemed to want to spark tensions to pressure the United States into changing its North Korea policy," it added.
It said that the latest detonation was conducted in a northern tunnel of its nuclear site in the northeastern area where Pyongyang previously carried out three tests.
Meanwhile, South Korea earlier in the day paved the way for the full deployment of a U.S. missile defense system while its military conducted a live-fire drill with North Korea’s test site as the virtual target. The Environment Ministry on Monday conditionally approved an environmental impact report on the Terminal High-Altitude Area Defense system.
That removes the final administrative hurdle for complete installment of the missile shield, known as Thaad, which China sees as a threat to the region’s “strategic equilibrium.” South Korea’s Defense Ministry said it would install the system’s remaining launchers "soon." The governments in Seoul and Washington were also discussing deployment of a U.S. carrier group and strategic bombers, Yonhap said.
Following Sunday's latest nuclear test, President Trump threatened to increase economic sanctions and halt trade with any nation doing business with North Korea - a threat he has used before without following through. That list would include China - the U.S.’s biggest trading partner - which accounted for about a sixth of its overseas commerce. China hit back at Trump’s threat, with Foreign Ministry spokesman Geng Shuang saying the comments were "neither objective nor fair."
While Asian stocks fell on Monday as investors turned to haven assets, sending the yen, gold and Treasury futures higher, the fallout was relatively contained with S&P futures down just 0.3% as of 6am ET. The biggest declines were in Tokyo and Seoul, with more moderate reactions elsewhere in the region.
Trump, who threatened over the weekend to pull out of the U.S.-South Korea trade agreement, took a shot at President Moon Jae-in’s administration after the nuclear test. On Twitter, he said that South Korea is finding that its “talk of appeasement with North Korea will not work.” In response, Moon’s office said that war shouldn’t be repeated and that South Korea and its allies “will pursue the denuclearization of the Korean peninsula through peace.” The two leaders haven’t spoken since North Korea detonated what it called a hydrogen bomb.