Dollar-Weakness Bets and Bond Jitters: Where Is the Market Headed?

The main driver of current inflation is analyzed to be supply-side problems. Inflation bets usually come when the economy is strong, but the market now shows strong signs of slowing growth. Analysts therefore argue that asset allocation should take a cautious approach that prepares for a possible economic slowdown rather than overcommitting to inflation.

Financial affiliates of Samsung Group, such as Samsung Life and Samsung Fire & Marine, are legally barred from holding more than 10% of industrial companies. If buybacks and cancellations occur, the industrial stake ratios of these financial affiliates could shift, creating a risk of additional share sales. As a result, shareholders are disappointed that the shareholder return policy falls short of their expectations.

Experts believe current price levels have little room to fall further and that the market bottom has already been confirmed. In particular, external factors such as Chinese companies' 2035 growth outlook are not considered in the current market valuation, and the prevailing view is that the excessive discount relative to earnings means no further decline is needed.

Rather than giving up on stocks entirely, doubts are rising over whether it is reasonable to keep investing while enduring the high volatility of the Korean market. This is interpreted as an indicator that investors are increasingly leaving the market, as deposits decline. Such weakening market stamina is expected to narrow the market's upside momentum and the range of stocks, and sentiment to cash out is likely to prevail when the market rebounds.

At the same time, the Clarity Act, a stablecoin-related bill, is being mentioned as possibly passing this year, and analysts say the crypto market has begun to move. In particular, as US Treasury issues come to the fore, stablecoins are emerging as an alternative to resolve the Treasury problem, and there is strong expectation that stablecoin activation will supply liquidity to the market. Accordingly, investors are expanding their portfolio weightings in crypto and gold as part of asset allocation.

About $940 billion is deposited in the TGA account, and it was mentioned that this money could be withdrawn to buy bonds. This ultimately shows an intention to resolve supply-demand imbalances in the bond market by having the Treasury act as a major buyer. The policy aims to ease market supply-demand factors, one of the main causes of rising interest rates.

In March of this year, before the war broke out, the US 10-year Treasury yield stood at around 3.9%. In recent months, however, it has surged to 4.7%. Experts point out that rising debt or the war alone cannot explain such a steep rise in yields. The core cause of the rise in US yields is actually analyzed to be higher oil prices. The jump in oil prices adds pressure on inflation, and expectations of rate hikes to counter it have been reflected in Treasury yields.

For example, with debt at 1 and growth at 2, the debt ratio is 50%, but raising growth to 3 lowers the debt ratio to 33%. The US appears likely to focus on lowering the debt ratio by increasing the denominator, growth. This ultimately reflects a determination to solve the debt problem through accelerated growth.

Experts believe economic sanctions may have a more effective impact on Iran than military pressure. However, skepticism also exists about how many months such economic sanctions can last. Doubts are being raised about the sustainability of economic sanctions, given that US military pressure is seen as having diminishing practical effectiveness.

This points to the need to resolve supply-demand imbalances through intervention such as Treasury buybacks or use of TGA account funds. While these measures may be only temporary stopgaps in the short run, they could provide short-term relief to the Treasury market. The Treasury market currently faces greater price volatility and upward pressure on yields due to the absence of buyers.

Critics argue this uncertainty has eroded market confidence in Warsh, and that the amplified uncertainty has acted as upward pressure on yields. The market is eager for clear policy signals from the Fed.

This raises concerns that there is discord in policy coordination between the Fed and the Treasury, or that the Fed is failing to meet market expectations. The Treasury Secretary's involvement shows the government's strong will to stabilize the market, while also implying a critical view that the Fed's response was insufficient.

Although there are concerns over Nvidia's earnings, analysis holds that these are not enough to discourage investment across the semiconductor market. Because AI investment cannot be halted, high semiconductor prices are expected to persist. Experts forecast current supply shortages will continue through 2027, and while market concerns will recur, they say these are not severe enough to undermine the fundamental earnings outlook.

This dynamic further highlights the importance of memory chip supply and works as a key factor determining the direction of the entire semiconductor industry.

However, experts see third-quarter profits rising from the second quarter as certain, and believe that concerns over declining profits raised in the market are already priced into share prices. The recovery and rising demand in the memory chip market are expected to drive profit gains, and the judgment is that FX effects are not enough to reverse the overall upward earnings trend.

This is analyzed as coming from a slowdown in the economy, which brings falling real incomes and weaker consumption. In other words, prices are not stabilizing because the economy is strong, but downward pressure on prices is expected to weaken due to the economic slowdown. Experts therefore advised a cautious approach rather than excessive bets on inflation.