And in Pakistan, the public has taken notice of the U.S. decision to cut security assistance; a rise in tensions with India -- over Kashmir especially -- is possible.
1. On New Year's Day, Kim Jong-un delivered an address in which he called for engagement with South Korea via the upcoming olympic games. That story was quickly subsumed by the U.S. president's tweet about the size of his nuclear button. But our signals captured a backstory that may indicate improved prospects for peace on the Korean peninsula. In the weeks before the supreme leader's speech, our volatility signals for both China-North Korea relations and South Korean security, which is sensitive to Seoul's relationship with the North, hit historic highs.
The heightened signal activity began on December 11, just days before Moon Jae-in met Xi Jinping in Beijing and pledged a “new start” in China-South Korea relations. The signals continued to rise after that, a possible sign of engagement between South Korea and China in handling North Korea, an effort that may have even influenced Kim's speech. If that's the case, and a coordinated China-South Korea strategy is emerging, the prospects for a peaceful resolution to the crisis may improve.
2. Last week, markets swung their attention toward the European Central Bank. Sluggish core inflation continues to thwart ECB hawks calling for an end to Quantitative Easing. Yet even if the bank is unlikely to signal QE unwinding anytime soon, the surge in interest among online observers could portend a move in the price of the euro. In 2017, Predata's volatility signal for the ECB spiked ahead of several 1% or greater moves in the currency. If that pattern holds true this year, the signal's sudden rise could mean another big move is forthcoming.
3. The Iran deal may not survive the first half of 2018. As he did last October, President Trump is likely to disavow the deal on January 13 when it will again require his certification. The White House must also decide this month whether to continue to waive sanctions against Iran. Not doing so would put the United States in violation of the deal and probably lead to its collapse. Judging from conversation on the Internet, recent anti-government protests in Iran appear to have strengthened the hand of the deal's opponents. Our signals that capture the online debate over the deal show that JCPOA supporters were quiet over the past week, whereas hardline opponents seized on the protests to amplify their message.
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