Stocks rallied by about 30 bps on the day, which was a rather unimpressive showing for the S&P 500 given Friday’s sizeable decline. Additionally, implied volatility melted lower on Monday, with the falling by more than 12 points to close around 16, down from roughly 28.
In reality, it was the rebound in semiconductor stocks that helped keep the index from finishing in the red. Even so, the S&P 500 stalled at its 20-day exponential moving average, suggesting that resistance remains intact for now.
At least from my point of view, yesterday was a rather boring day, with not much really changing. The one notable exception was , which fell by more than 2% on rumors that a pension fund was hedging its exposure to US dollars. That is a very large move for a currency and could prove important to watch in the context of the AI trade, especially given how much the Korean market has rallied over the past few months.
A weaker won tends to benefit exporters, and we also know that Korean investment in U.S. assets has surged in recent years. As a result, a rising USD/KRW is generally consistent with investors selling won, buying U.S. dollars, and using those dollars to purchase U.S. assets.
Conversely, if investors are selling U.S. assets and repatriating capital to Korea, one would expect USD/KRW to fall as USD is sold and KRW is purchased. That makes yesterday’s move particularly interesting because, if sustained, it could signal a shift in capital flows with implications beyond the currency market.
Finally, the report will be released on Wednesday, and my guess is that the market will take this report more seriously than it did the , which probably means the VIX 1-day won’t close Tuesday higher than 12.
As of yesterday, swaps are pricing in headline inflation at 4.27%, which rounds to 4.3%, compared with the consensus analyst estimate of 4.2%.
That is something worth paying attention to and monitoring closely to see whether CPI swap pricing moves lower or analysts’ estimates move higher ahead of the release.