KRW: USDKRW Weaker at Open, Eyes on US-Korea Talks
- USDKRW is modestly weaker in morning trade as investors wait to see if anything comes from the meeting between President Lee Jae Myung and his counterpart President Donald Trump later.
- A favourable outcome for Korean trade could provide a bid to the Won, the worst regional performer of currency peers over the last month.
- USDKRW has lost ground by -0.07% today to 1,433.45 remaining north of all key moving averages, yet has moved below the RSI overbought 70 level, with modest gains last week.
- The KOSPI is one of the best regional performers powering higher by +1.4% whilst bonds drifting higher in yield as the 10-Yr approaches 3.00%.
- USDKRW 1M ATM Vol is only modestly higher at 7.97 (from 7.93 yesterday) and has been held in tight ranges over the last week.
- Positive news from the meeting could see USDKRW trend down towards 1,420
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US STOCKS: Russell Index - Bounces Back From 2400, Payrolls This Week Is Key
The Russell 2000 overnight range was 2413.550 - 2434.32, closing +0.97%. The Russell 2000 found demand back towards 2400 and bounced nicely as the market reacted to benign US data. The Russell would be the biggest beneficiary of a new cutting cycle but with the market recalibrating its very dovish expectations the small cap exuberance is being tempered. CFTC data for last week show the leveraged fund community pulling back on their short holdings, the position remains significant so the risk of further scaling back remains. Payrolls this week if released will be very closely watched.
- MNI FED BRIEF: Fed's Barkin-Jobs Shakier, Inflation Less Troubling. The U.S. employment outlook has deteriorated following recent weakening in payroll growth and large downward revisions to past numbers, while inflation has not risen as much as had been feared due to tariffs.
- Bloomberg - “If the labor market data was to prove better than expected next week, it would certainly undermine the primary argument put forward by Fed Chair Powell to cut rates further and force the Fed to give more weight to the upside inflation risks,” said Derek Halpenny, head of global markets research at MUFG.”
- CFTC data shows leveraged funds reduced their shorts last week to -75850( previously -90215). This has been cut back from a high of around -117000 at the beginning of August.
- These shorts would most likely be held against longs in other sectors which have done remarkably well and so the losses would not be as acute, but a move through all-time highs might make some of these reconsider the position.
Fig 1: CFTC Russell Leveraged Funds Positioning
Source: MNI - Market News/Bloomberg Finance L.P
CHINA PRESS: Industrial Profits Return To Growth
Profits at industrial enterprises increased 20.4% y/y in August, reversing a decline of 1.5% in July, driven by efforts to combat aggressive price competition, coupled with a low base from the same period last year, Yicai.com reported citing data by National Bureau of Statistics on Saturday. For the first eight months, industrial profits grew by 0.9% y/y, reversing the continuous decline since May. Profits are expected to keep recovering moderately, with the support of anticipated additional pro-growth policies, and improving market order and more reasonable price transmission and cost distribution mechanisms, the newspaper said citing Wen Bin, chief economist of China Minsheng Bank.
CHINA PRESS: PBOC To Focus On Policy Implementation
The People’s Bank of China may continue prioritising “implementing existing policies” for now, as signaled by its Monetary Policy Committee at the Q3 meeting, 21st Century Business Herald reported. Compared with Q2, the Committee added a call to “ensure thorough implementation of various monetary policy measures to fully unleash policy effects,” while dropping reference to “stepping up efforts to implement additional policies,” though still stressing policy flexibility, the newspaper said.
