US TSY FUTURES: FV/TY Block

SocGen note that they are revising up their target and stop for their long USD/KRW recommendation to “KRW1,250 and KRW1,215, respectively. The current context of higher energy prices with downward pressure on global growth is a perfect formula for a weaker Korean won. Even before the Russia-Ukraine crisis, we expected Korea's exceptionally strong trade surplus to ease off in 2022.”

• “Another source of local political uncertainty, regarding the management of the upcoming election has also suddenly come to the fore, which could be an additional headwind to the Korean won irrespective of who wins the election on 9 March. Civic groups and both ruling and opposition parties have filed complaints against top National Election Commission (NEC) officials over their alleged mishandling of early voting by COVID-19 patients. Unless a candidate from either the ruling or opposition party wins with a significant margin (i.e., more than a 5ppt gap), there is a risk that the loser and their political associates may cast a doubt on the integrity of the election.”
• “Global growth has overridden factors such as global commodity prices in determining the extent of Korea's trade balance. Meanwhile, Korea's trade balance and oil prices have started moving closely together since 2021. The tendency of commodity prices, including oil prices, to determine the trend in Korea's trade balance is likely to increase in the current context of the Russia-Ukraine crisis.”
• “The vicious cycle of: 1) higher commodity prices, including oil; 2 )a weakening Korean trade balance even without base effects; 3) foreign investors' withdrawal from Korea's equity market; and 4) a higher USD/KRW and a subsequently worsened trade balance. Another conundrum for us prior to the Russia-Ukraine crisis was wide-spread expectations that Korea's transfer to the MSCI DM Index from EM index will lead to sizable equity portfolio inflows and strengthen the Korean won. In our view, if this happens at the earliest in May 2024, it is likely to trigger ~USD12bn in outflows rather than inflows. Therefore, we view the case for a stronger Korean won on the back of KOSPI reclassification to MSCI DM index as misled.”

The won remains the worst performer in Asia EM basket, even as risk aversion has eased as the Asia session has progressed.

• Spot USD/KRW last sits +5.00 figs at KRW1,232.00 after printing a fresh cycle high. Further gains past May 25, 2020 high of KRW1,244.25 would support the bullish case. Conversely, bears look for a retreat under Jan 28 high of KRW1,207.25.
• USD/KRW 1-month NDF last seen at KRW1,232.55, now a touch lower on the day. Bears look for a dip through Jan 28 high of KRW1,214.39, while bulls keep an eye on May 25, 2020 high of KRW1,244.46.
• The two leading presidential candidates are holding rallies in Seoul to wrap up their campaigns on the eve of the election day. Yoon Suk-yeol of the main opposition People Power Party remains betting markets' favourite (per PredictIt data), but final polls showed that ruling Democratic Party's Lee Jae-myung is not far behind. That being said, Yoon received a fillip after the final opinion polls were out as the third-ranking candidate dropped out and backed his bid.
• Focus moves to South Korea's BoP current account balance, due Friday.