Kim Hyun-seok’s Wall Street Now interest rate seizure is over… The reason China is so sick

March 10 is a significant day in New York’s stock market history. March 10, 2000 was the day when Bubble.com peaked. The NASDAQ crashed the next day after closing at an all-time high of 5048.64 at the time. It was in 2015, 15 years later, that the level was restored again.

In particular, as the Nasdaq surged the day before, the Nasdaq 100 index compared to the S&P 500 had risen to the level of that day 21 years ago.

Until dawn on the 10th (local time), the market was silent as if commemorating 21 years ago. We waited for two important events of the day: the release of the Consumer Price Index (CPI) for February and the results of a 10-year US Treasury bill ($38 billion).

The CPI, announced at 8:30 a.m., brought relief to the market. It was only an increase of 0.4% from the previous month and 1.7% from the previous year. It was higher than the January figures (0.3%, 1.4%), but it met expectations. Excluding volatile food and energy, the source CPI also rose only 0.1% and 1.3%.

“The CPI could continue to exceed 2% in the future,” said Greg Dako, an economist at Oxford Economics. “It will fall again after peaking this spring. It will not soar beyond control.”

Of course, there is still a loud voice warning of inflation. Jeffrey Gundlock, CEO of Doubleline Capital, a famous bond investor, said in a webcast on the day, “The Fed has chosen not to worry about inflation exceeding 3% for a certain period of time.” CPI can exceed 4%.”

In fact, this month has passed, but the CPI may soar from next month. This is because the CPI in March-May last year recorded deflation due to the pandemic. Considering the base effect and the soaring oil prices, it could exceed 2% compared to the previous year.

When the CPI came out, 10-year Treasury yields staggered. In an instant, it fell from 1.569% per year to 1.53%, and dropped to 1.51% at 12 p.m., just before the 10-year bidding.

The New York stock market started off strong. As time went on, the rise increased, and the Dow climbed more than 400 points. On the other hand, the Nasdaq, which started with an increase of more than 1%, staggered as the’reflation trade’ (buying a beneficiary stock in anticipation of an economic recovery and inflation) strengthened. After 10:30 a.m., it fell to negative compared to the previous day. Tesla, which once rose by more than 7%, has once turned down by more than 2%. On this day, Goldman Sachs analyzed that the 3.69% rise of the NASDAQ the previous day was due to short-covering of hedge funds (predicting a decline and buying back to pay off the short-sold assets).

At 1 pm, with everyone watching, a 10-year bidding was held. The winning bid rate was set at 1.523% per year, slightly higher than the previous market rate. The bid rate was also good at 2.38 times. It was similar to the annual average of 2.42 times. In the market, it was evaluated that “it was not very satisfactory, but it was digested relatively smoothly.”

Since then, interest rates have fallen to 1.506% and the major indexes of the New York Stock Exchange have increased. The Dow ended up trading at 32,297.02, up 464.28 points or 1.46%. This is an all-time high. The S&P 500 index rose 0.6% to close at 3,898.81, returning to the level in early February, before interest rates skyrocketed. A Wall Street official said, “It could be interpreted as a sign that investors are getting out of interest rate uncertainty.”

On the other hand, the NASDAQ fell 0.04%. FAANG stocks such as Apple, Amazon, and Alphabet all showed a slight decline of less than 1%.

Mark Hepel, chief strategist at UBS said, “Yesterday the economically sensitive stocks were weak, but we expect the reflation trade to continue.” It will benefit greatly.” He added that these stocks are positive as interest rates rise.

There was anxiety about the success of the 10-year Treasury Bond bidding that day, but it was predicted to some extent. A Wall Street official explained, “I thought this bid would be successful because the price of borrowing 10-year Treasury bonds in the repurchase conditional bonds (repo) market has soared, but it was correct.” “The repo market’s 10-year demand was for short selling, but if interest rates fall like this, short-covering could occur,” he said. That means interest rates may go down further.

Anyway, on this day, both variables passed safely. In addition, a $1.9 trillion stimulus package passed safely through the House of Representatives. President Joe Biden announced plans to sign it on the afternoon of the 12th. CNBC stock critic Bob Bassani explained, “Investors had all the stimulus measures, good CPI, and 10-year bidding on this day.”

As the market stabilized, speculation took off. Stocks like’GameStop’ showed record surges and collapses.

GameStop, which ended at $246.9 the day before, soared to $348.5 at 12:00 on the day. But right after that, for no apparent reason, it plunged 50% in 30 minutes, down to $172. Since then, the decline has been significantly recovered, and the closing price ended with a 7.33% increase from the previous day to 265 dollars. Due to the voluntary movement of the stock price, trading was suspended seven times. Not only the game stop, but also AMC entertainment and courses moved like a yo-yo.

In particular, one of the most traded options in the stock options market that day was the GameStop $800 call option due on Friday the 12th of this week. A whopping 43,934 contracts remain. Considering that one contract is 100 shares, there is a contract to buy 4.39 million shares for 800 dollars. This amounts to 10% of 45.1 million floating stocks. If the stock price goes above $800 by Friday, you’ll make a lot of money. If not, it could be a tissue paper.

Due to the overflow of liquidity, this kind of speculation can lead. With the stimulus passed that day, Americans will receive an additional $1,400 per person within this month. Much of this could be driven into the US stock market. Deutsche Bank estimates that out of $1.9 trillion in direct grants, $466 billion, of which 37% or $170 billion, could flow into the stock market.

The US Securities and Exchange Commission (SEC) issued a warning that “think twice when investing in a company for acquisition of business (SPAC).” With the recent spec boom in the United States, celebrities such as Stephen Curry, Shaquille O’Neill, and Alex Rodriguez are also jumping in.

The market was good for investors in the New York stock market, but it was even more fortunate for emerging markets such as Korea.

The recent surge in interest rates has been called’Taperless tantrum’. In 2013, the former Fed Chairman Ben Bernanke said that he would taper (to gradually reduce the amount of bond purchases he buys each month), and a market seizure occurred due to’taper tendrum’, or tapering, now Chairman Jerome Powell. Even though he said’I will not tapering’, he still had a seizure.

In fact, on May 22, 2013, the taper tendrum, arising from former Chairman Bernanke’s remarks that “we will discuss tapering at several meetings in the future,” has only had a short-term impact on the New York financial market. The stock market plummeted as the 10-year interest rate soared from 1.6% to 2.7% in two months from May 22nd, but fell 5.7% based on the S&P 500 index by June 24th. In particular, the US stock market rose 32.29% that year as the Fed tried to stabilize the market and slowed down to actual taper.

At the time, the damage was seen by emerging markets. The global stock market went through dark days after the US austerity controversy and the recovery of the dollar that had spread to global financial markets. In the bond market, the dollar went out like an ebb. Looking at the KOSPI alone, it was around 2000 at the time, but it was around 2000 before last year’s pandemic. This is the background of the word’boxpi’.

China’s continued tightening in spite of the fall in the stock market, and the People’s Bank periodically trying to reduce its liquidity supply may be in preparation for this US taper and dollar recovery. In addition, the US can use it to further harass China, as it is in a battle for supremacy with China. This is the reason why China’s Banking and Insurance Management Supervisory Commission (CBIRC) Guo Shu-qing warned of the side effects of global liquidity expansion on the 2nd. “As the economy becomes highly globalized, foreign capital inflow to China will increase significantly,” said Guo. “China is looking for ways to manage foreign currency inflows to prevent fluctuations in the domestic market.”

In fact, China suffered a tough time from 2015 to 2016 as the dollar that had flowed in after opening the money market in the past was suddenly drained.

According to Bloomberg, China’s optical currency volume (M2) in February rose only 7.4% from the previous year. That’s much lower than the market forecast of 11.1% increase.

Reporter Kim Hyun-seok [email protected]