KRW: USD/KRW Upticks Faded As Tech Equities Rise, BoK Seen On Hold Today

In post-Tokyo trade, JGB futures are weaker, closing -14 compared to settlement levels, despite US tsys finishing the NY session with only a modest cheapening. Yields ended ~1bp higher after being ~2bps lower during the Asian session on the back of news that President Biden was pulling out of the election race.

• It seems very likely that Kamala Harris will be the Presidential Nominee for the Democrats with the focus now turning to her running mate, betting markets have Josh Shapiro as the favourite with a 32% chance followed by Andy Beshaer at 26% and Roy Cooper at 20%.
• There weren’t any major headlines causing the sell-off with some desks citing incoming Treasury coupon supply (2s, 5s, 7s and 2Y FRN) or possibly some hedging.
• Today, the US calendar will see Regional Fed and Existing Home Sales data and a $69bn 2Y Note auction.
• US equities rebounded, with the tech sector leading the gains after the recent rotation out of these stocks. The tech-heavy Nasdaq index is up ~1.5% against a ~1% rise in the S&P500.
• Today, the local calendar will see Machine Tool Orders data alongside BoJ Rinban Operations covering 1-10-year JGBs.

Spot USD/KRW ended extended Monday trade near 1388.5, slightly down on end Friday levels (1390.65). The 1 month NDF ended at 1384.65 in NY trade on Monday, also slightly firmer in won terms. Whilst some higher beta FX faltered amid commodity price weakness, the won likely received some benefit from the better global equity tone.

• Spot USD/KRW remains wedged fairly close to recent highs above 1390. Given the 1390/1400 region has marked 2024 highs, we may see some resistance to a surge in USD momentum through these levels. Still, fresh yuan weakness, following yesterday's rate cuts, worked against the won, providing some offset to the firmer global equity backdrop.
• In US markets, the SOX surged 4%, although we remain comfortably off recent highs. The MSCI IT index rose 1.78% in Monday trade, its first gain in 5 sessions. Key tech earnings are coming into focus, which kick off Tuesday in the US (Tesla and Alphabet).
• For the Kospi, overnight Monday moves may provide some stability following the recent correction lower (-4.5% off mid July peaks). Offshore investors were net sellers of local equities, with -$191.2mn in net outflows on Monday (July to date remains positive though, +$1.56bn).
• On the data front, we have already had the June PPI, which rose to 2.5%y/y from 2.3% in June. This puts us back towards early 2023 levels, although 2022 cycle highs were at 10%y/y.
• Tomorrow, we get July consumer sentiment figures, then on Thursday advance Q2 GDP print.

ACGBs (YM -3.0 & XM -3.0) are cheaper after US tsys finished with modest losses after shedding early gains. Risk-on flows and incoming supply (2s, 5s, 7s and 2Y FRN) weighed.

• The political news that President Biden would not seek re-election, endorsing VP Harris, was taken cautiously. However, the chances of a Trump victory were pared slightly. The 2- and 10-year yields finished ~1bp higher.
• US equities rebounded, with the tech sector leading the gains after the recent rotation out of these stocks. The tech-heavy Nasdaq index is up ~1.5% against a ~1% rise in the S&P500.
• (AFR) Bloomberg said its latest Markets Live Pulse survey found that investors expect the current reporting season to reinvigorate the S&P 500. “Nearly two-thirds of the 463 respondents to the questionnaire expect earnings to boost the US equities benchmark. About half of the participants predict that Corporate America’s scorecard will be better in the coming months than in the first half of the year.”
• Cash ACGBs are 2-3bps cheaper, with the AU-US 10-year yield differential at +9bps.
• Swap rates are 2-3bps higher.
• The bills strip has bear-steepened, with pricing flat to -2.
• RBA-dated OIS pricing is little changed. Terminal rate expectations sit at 4.43%.
• Today, the local calendar is empty.