2015.07.22 Daily

Let’s talk about Korean bond rate today. USD strengthening movement unwound yesterday and KRW appreciated a bit today. I saw its peak as 1,160~1,170 and I think it starts to turn around since today. Yesterday and today are maybe the inflection points in FX market. Foreign investors buying KTB futures seems so convenient because they saw this picture that the divergence of monetary policies between US and Korea deepen further as Korean officials pursue to easing stance in both of fiscal and monetary conditions despite Yellen, US Fed’s chairwoman seems to want to hike the rate quickly. On the other side, if Korean government has to increase policy rate despite the burden of household debt, foreigners could earn gains from KRW appreciation and this would be bigger than the loss from downward price of KTB futures. Or US fed could turn to be dovish on its policy stance. If then, foreign investors gain on both of capital gain from KTB futures and FX position. So, they seem to be very encouraged on their position.

In stock market, especially in US, after closing the market and announcing earnings of main firms including MS, stock price declined rapidly despite their earnings beat the market expectation. This point seems to be very meaningful. In US equity market, participants do not expect other good news further as I think. So, it would be the inflection point in short-term in equity markets. And if this scenario is realized, Fed’s stance for monetary policy could change to be dovish. That said, in short term, the opportunity to gain returns is on short USD and long bonds, I think.