US Bans Component Makers From Selling Parts to ZTE

The US Commerce Department has prohibited component makers from selling to ZTE. The action has caused the stock of various component makers to drop. Acacia Communications Inc. (NASDAQ: ACIA) receives 30% of its total revenue from ZTE and saw its stock drop over 30%. Oclaro Inc (NASDAQ: OCLR), received 18% of its revenue from ZTE and experienced a drop of over 15%.

Implementing ISO 31000:2018 and  assessing risk is one method of mitigating the effects of losing a supplier. Clause 6.4.2 tasks the organization with identifying uncertainties. Geopolitical activities would be  indicators of emerging risks. The recent political change in the USA would need to be evaluated. Clause 6.5 discusses risk treatment. In this case diversification of the customer base to mitigate the loss of a single customer could be undertaken by the organizational leadership. Insurance against geopolitical events would also be a way of reducing the impact of losing customers.

Structural issues with the organization my continue for many years before a geopolitical event may disrupt your business. We recommend assessing risks and opportunities periodically during the business cycle and taking long and short term measures to exploit upside risk while minimizing downside risk.

Uncertainty Ahead of French Election

Polls show a small gap between the front runners with National Front leader Marie Le Pen tied with François Fillon. A populist win would be a threat bigger than Brexit to the Euro and the EU. Frexit is a possibility along with dropping the Euro and moving to a “nouveau franc” to make exports competitive. National debt would convert to the new currency which would likely be a default. There is high anxiety about the election since polls were wrong about the US Presidential election and Brexit.

The Euro has been on a one month slide against the Japanese Yen. This indicates that Japan is a safer economy than Europe. The Euro recently recovered against the Yen, but is facing resistance. This may change if Marie Le Pen begins to slip in the polls.



There has also been as safe flight to the US Dollar over the past month.


Along with increased demand in the 10-year Treasury Note.

US-T 10Y
10 Year US Treasury

US companies doing business in France have FX exposure the Euro and potentially high impact exposure to introduction of a devalued currency. US companies may wish to insure accounts receivable against further erosion through forward contracts, futures, or options.

Won Continues Slide as Warships Deploy to Korean Peninsula

The US Dollar and Japanese Yen continue their week long bullish run against the Korean Won. On April 3, US President Donald Trump stated that the US would act unilaterally if necessary. The statements and deployment of US warships to the region are worrying markets.


China and South Korea agreed to place sanctions on North Korea of it tests a nuclear or long range missile. US Secretary of state Rex Tillerson said a response is likely if other countries pose a danger. A Japanese defense ministry source said it is probably not realistic for the US attack. Per Japanese reports no coordination with US forces for military action has taken place.

We see the situation as headline worthy, but not disruptive to trade and business in the region. Barring any unusual activities by the Federal Reserve we also expect the Won to gain strength after the showdown is over.