2015.07.29 Daily

I missed to write the daily yesterday due to early finish up the work. From now on, let’s talk about KTB futures market and foreign traders, who I don’t call them for the investors.

I thought they deserved to buy KTB futures because they could gain from one of two sides, capital gain in futures price or KRW appreciation, or both of them. Meanwhile, they accelerated to buy futures in both of 3 year and 10 year market toward historical maximum position, and this seemed somewhat unacceptable for the market because it means they may have conviction that BOK should cut the policy rate soon or Fed might be dovish in coming FOMC. I think, they consider this aspect with technical analysis which is their main weapon in KTB futures market. Many markets in global including KTB futures and FX markets such as EUR, BRL, and etc have moved on a big volatility recently in line with the convergence of moving average lines. Continued convergence should lead explosion toward one direction commonly. And foreign traders maybe bet on strong KTB futures, I guess.

And then, their winning looks possible? It is maybe not. I expect range movement in many prices would continue further under two opposite factors, possible reflation and remaining deflation woes. Foreign traders in KTB futures market tend to follow the trend, and they usually won in the strong trend. But they sometimes failed to gain when market price moved in a box. I see this pattern as the second one. Yesterday, their recent profit was thrived by the weakened market with not special materials. I think they were embarrassed on it because UST yield dropped last day and Chinese stock market was down further although shaped a positive candle. They should feel the possibility that they could fail this time.

But, today KTB futures market was strong despite of the weak UST market and strong SHCMP. It makes me embarrassed. But I understand this as a simple volatility ahead of FOMC and a stupid short-cover by domestic investors. About coming FOMC, It seems not easy that Fed reveals the hawkish stance or signals first hike in next meeting yet. They should consider recent somewhat negative data, such as today’s consumer confidence index that recorded about 1.5 year low in labor market expectation especially and recent woes about Chinese equity market. On the other hand, they would be not easy to turn to be dovish, neither. They are afraid to be too late to start monetary tightening in terms of possible inflation. They would maintain data dependent stance and financial markets would move in recent ranges as well.

In short-term, all of market participants focus on the Chinese equity market and today is very strong spurred by capital injection by government. Does this mean the market trajectory should be downward soon? I have no idea. In fact, some colleagues already bet on Chinese equity market burst. People consider the excessive margin position only, although they see that position shrank rapidly. They do not seem to consider net short position to China.