Treasury Yields, Oil Prices Soar: Inflation Warning

Yoo Sa-nam, Department Head, analyzed that “the future path of inflation will become somewhat clearer depending on the US Energy Information Administration's short-term energy outlook.” He added that inflation forecasts could be calculated based on the short-term energy outlook. A key market concern is whether the recently strong 10-year Treasury yield can ease the burden through this auction.

Yoo Sa-nam, Department Head, commented, “The ISM Manufacturing Index, there was a common phrase there. 'Prices are high. Labor costs are high. We can't endure this inflation. We have to raise our prices,' they said, and the first place that shows up is ultimately the Producer Price Index.” The market's reaction to expectations of 0.3-0.4% will be important.

Such large issuance volumes can also affect market liquidity, adding to upward pressure on interest rates.

Apple's new foldable iPhone is priced approximately 10% higher than expected, indicating a spreading inflation phenomenon across IT devices. There are even predictions that large-capacity models could approach $3,000. Yoo Sa-nam, Department Head, noted, “Large-capacity models are rumored to approach $3,000, and the current price is about 10% higher than expected. This is the entire inflation phenomenon happening in electronic products right now.” The direct cause of these price increases is attributed to cost burdens due to memory shortages.

Yoo Sa-nam, Department Head, explained, “Data centers, as you know, don't just stop at semiconductors; the rising copper prices now, in particular, are not just about data centers, but tariffs have also overlapped.” Data centers require not only semiconductors but also a large amount of copper for their power grids, and with an additional 10% tariff, the cost burden of copper is increasing even further.

Stocks of quantum sector companies that have signed a $100 million direct investment contract with the US Department of Commerce are soaring. Yoo Sa-nam, Department Head, pointed out the possibility of a thematic squeeze rally, stating, “Companies that received money from the US government are rising. They received funding. This is the $100 million direct investment contract from the US Department of Commerce. It's described as a thematic squeeze rally. The likelihood of it being a pump and dump seems quite high.” This is a warning to be cautious with investments, as the stock price increase is due to government funding rather than actual product production.

As expectations for the Bank of Japan's interest rate hike grow, the attractiveness of yen-denominated assets is significantly increasing. Yoo Sa-nam, Department Head, stated, “As expectations for the Bank of Japan to raise interest rates increase, the attractiveness of yen assets themselves is rising significantly. If the yen's value rises to the 140 yen level, I will then switch to a short position on US stocks.” This could lead to Japanese pension funds selling off overseas assets, affecting global markets. Yoo Sa-nam, Department Head, predicted he would switch to a short position on US stocks if the yen's value surpasses 140 yen.

The price of copper 3-month futures on the London Metal Exchange (LME) surged to $14,500 per ton, setting a new all-time high. A primary reason for this sharp rise in copper prices is increased industrial demand driven by the expansion of power grids for data centers. Data centers require vast amounts of electricity, and copper is a key material for power transmission. Yoo Sa-nam, Department Head, also commented, “The rise in copper prices isn't just due to data centers. The LME 3-month copper price reached $14,500 per ton, setting a new record high,” and analyzed that preemptive stocking up in anticipation of expanded US tariffs, or hoarding, is also contributing to the price increase. Companies' efforts to secure inventory before tariffs are imposed have further boosted copper demand. These complex factors combined are driving the explosive rise in copper prices.

Yoo Sa-nam acknowledged the long-term demand for copper but predicted that prices could fall due to oversupply if tariffs are actually imposed. He stated, “While I believe there is long-term demand for copper, I think copper prices could fall when these tariff-related issues actually start to be imposed.” He analyzed that the current short-term price increase is likely an illusion caused by hoarding in anticipation of tariff imposition.

Yoo Sa-nam explained, “If the exchange rate goes down, they receive money in dollars, so overall sales adjustments come down. Since it is recorded in KRW, there is a relative loss.” The loss incurred when converting dollar-denominated payments to KRW results in a downward adjustment of KRW-denominated sales, which can negatively impact corporate profitability.

Yoo Sa-nam mentioned, “The probability of Clarity passing is 16%.” This is lower than general market expectations, indicating that the bill's passage is not highly likely.

Yoo Sa-nam expressed a skeptical view on the deployment, saying, “Personally, I wonder if we really need to clean up America's mess.” While the possibility of deployment due to US demands is mentioned, deteriorating morale and resignations of ministers within the US military are also being pointed out.

An evaluation of the new AI model 'Astra' was released. Yoo Sa-nam said, “Astra is good, but it's true that it's not AGI-level yet,” and evaluated Astra as superior to 'Fable' in terms of computer control capabilities. However, he concluded that it has not yet reached the overall Artificial General Intelligence (AGI) level. This statement helps gauge the current state of AI technology development. The emergence of Astra shows improvements in specific AI functions, but the advent of true AGI is still far off, according to the analysis.

A forecast on the advent of Artificial General Intelligence (AGI) was made. Yoo Sa-nam predicted, “AGI will likely emerge in the generation after next,” expecting AGI to appear in ChatGPT 6 or ChatGPT 7-8 generations. This suggests that given the current pace of AI technology development, there could be revolutionary changes within the next few years.

Overall macroeconomic headwinds are pressuring the market, with 10-year yields exceeding 4.78% and oil prices attempting to break their highs. Yoo Sa-nam expressed a bearish outlook on the market, saying, “Should I close long today? Or close short? I'm short.” Despite the strength in the memory and semiconductor sectors, this analysis suggests that these macroeconomic headwinds will have a greater impact on the overall market. A high interest rate and high oil price environment can increase corporate cost burdens and dampen consumer sentiment, leading to an overall economic slowdown.

Semiconductor companies like ASML and TSMC are considered safe investments because there are no substitutes for them. Yoo Sa-nam commented, “Companies like ASML and TSMC are definitely safe bets to hold because there are no alternatives.” ASML, in particular, is expected to improve efficiency through the introduction of new equipment, making it an analysis that it is a company that can generate stable profits in the long term.