kospi Markets south korea

Tensions on The Front Burner – Full-Flame

At least Bitcoin is doing well.

Surveying more damage on Thursday amid escalating trade tensions and incessant Trumpian bombast, one finds the worst day for South Korean stocks since October.

The Kospi has fallen for four consecutive sessions and Thursday was particularly loathsome – the main gauge dropped more than 3%. The tech-laden Kosdaq fell 2.8% on the day.

Tensions on the peninsula have risen markedly this week thanks to Kim’s rekindled interest in “projectile” experimentation. The yen has strengthened five days in a row. The VIX is gunning for a 23-handle.

“The Korean won has been steadily getting caned by the yen”, former trader Richard Breslow wrote for Bloomberg on Thursday, on the way to delivering the following highly useful color:

Granted the news from the North hasn’t been constructive. Just today, there were reports about the firing of two short-range missiles. But the cross is also an important measure of how relative levels of exposure to China are being evaluated. And the flashing warning signs turned a much deeper shade of red when the cross blew through what was supposed to be a ridiculous extreme from the yen’s January flash crash.

Thursday has a “‘more of the same’ slow-and-grinding deleveraging in S&P futures” feel to it, Nomura’s Charlie McElligott wrote Thursday morning, adding the de-risking is “beginning to feel ‘tired’ without a fresh catalyst.”

[Narrator: Don’t worry, Trump will provide a catalyst]

“For relativity sake, since Friday, Spooz have frankly already ‘priced-in’ -3.0% of tariffs, which is more or less in-line with prior tariff-related vol bouts”, McElligott went on to write, nothing that for now, we’re closer to re-risking levels for CTAs on the S&P than we are the next de-risking trigger. The blue dot in the following visuals is current positioning. The red-shaded area is Nomura QIS’s “estimate of tomorrow’s positioning for various levels of the market close today”:

(Nomura QIS)

Charlie continues: “The highlighted Equities- and Commodities- visuals capture the proximity of recent inflection points / deleveraging, however, the Global Bonds- and USD FX crosses- capture still how deeply ‘in the money’ the signals are, with little current threat of deleveraging said positions.”

Ultimately, the risk-off mindset appears to have settled in, even if the grind lower in US equities feels “tired”, as McElligott puts it.

The burden of proof to flip things back bullish falls to the trade talks. Apparently, we’re not going to get anything positive on the domestic political front and geopolitical tensions (e.g., Iran’s “ultimatums” and Kim’s weapons tests) are back on the front burner, full-flame.

Things aren’t all bad, though. We’re back to pretending like Bitcoin isn’t going to zero…


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