Global Bond Markets May Face More Volatility Amid An AI Unwind

The Fed has entered a blackout period, and that means no speeches. It will also be a very slow week for economic data. The highlight could come Friday when we get the S&P Global Flash PMI reading for October. Remember, the September report sent bond yields soaring, so this is probably the report to watch, and it could have a bigger impact than many think. That was the case last month.

I think many missed that rates didn’t get to where they were from the job or CPI reports alone; the S&P PMI did it, and it shows how expectations for a hot CPI report played into it. So, the case of why rates fell on the CPI report, I think it was a buy-the-rumor, sell-the-news type of event.

This week will also bring the CPI report from Japan, where both CPI and core CPI are expected to be 2.1% y/y, up from 1.9% and 1.7%, respectively. Bond yields in Japan have fallen sharply as well, so what we saw last week was not just a move in US rates, but a move in global rates. Currently, the BOJ is expected to not raise rates again until December; a hotter-than-expected CPI print could alter that path, which is why it should remain on the radar.

The Bank of Korea meets this week and isn’t expected to raise rates until December; while many may be thinking, “Who cares?” I would argue you should. Look at USDKRW since July, when the BOK signaled more hawkish views on monetary policy; it has fallen materially (strengthening).

The stronger won isn’t positive for stocks like SK Hynix or Samsung; neither has performed well since the won started that strengthening trend, and since both are the largest in the KOSPI, they haven’t performed well either. That has been the AI trade for the most part, and one has to think that tighter policy in Korea means a strong KRW, which will continue to weigh on Korean stocks.

For the most part, whether right or wrong, the KOSPI and the SMH have moved together; you can’t argue with that; the charts make it clear. So as long as the KOSPI struggles, the SMH will too.

-Mike

Michael Kramer publishes independent macro and options research read across 10+ platforms and by institutional desks.

For institutional partners: research syndication, licensing, and bylined or white-labeled commentary for platforms, brokers, and publishers.

Inquire →

Glossary by ChatGPT

Bank of Japan (BOJ): Japan’s central bank, responsible for setting monetary policy and maintaining price stability.

Bank of Korea (BOK): South Korea’s central bank, responsible for monetary policy, inflation management, and financial stability.

Blackout Period: The period preceding a Federal Reserve policy meeting during which officials are restricted from making public comments about monetary policy.

Core CPI: The Consumer Price Index excluding volatile food and energy prices, used to assess underlying inflation trends.

Flash PMI: A preliminary Purchasing Managers’ Index reading that provides an early indication of economic activity in the manufacturing and services sectors.

Fibonacci Retracement: A technical analysis tool that identifies potential support and resistance levels based on percentage retracements of a prior price movement.

KOSPI: The Korea Composite Stock Price Index, South Korea’s principal equity market benchmark.

Monetary Tightening: Central bank actions intended to restrict financial conditions, typically through higher policy interest rates or reduced liquidity.

RSI (Relative Strength Index): A momentum indicator measuring the speed and magnitude of price changes on a scale of 0 to 100.

SMH: The VanEck Semiconductor ETF, which tracks an index of major companies involved in semiconductor production and related technologies.

USDKRW: The exchange rate representing the number of South Korean won required to purchase one US dollar; a decline indicates won appreciation against the dollar.

Disclosure

This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.