Authorities in South Korea are desperately trying to clamp down on the volatility sweeping through the country's stock market, with their latest move on Thursday targeting leveraged, derivative-based ETFs tied to major technology firms like Samsung and SK Hynix. Will it work?
Volatility in the KOSPI index has gone through the roof — 30-day realized vol is higher than any point on record apart from late 1998 around the LTCM crisis and Russian debt default — and foreign investors are selling at the fastest rate in 25 years. Hold on to your hats.
In monetary policy, the signals central bankers send can often be as important as the actions they take. Sometimes more so. So new Fed Chair Kevin Warsh's pledge to overhaul the Fed's communications strategy, effectively towards a "less is more" approach, is bound to create some degree of uncertainty and unease for investors.
The Warsh Fed's "reaction function" remains unclear. How will the Fed react to shifting economic indicators, what will precipitate that action, and what will that action be? Nobody knows yet. Meanwhile, it's quiet period for the next two weeks ahead of the July 28-29 policy meeting. But will officials be so quiet after that?
A new Fed paper and U.S. capital flows data this week underscore just how pivotal AI is to the U.S. economy and markets. The Fed paper suggests AI-related imports could widen the current account deficit more than previously thought, while the latest "TIC" data shows foreign investors continue to pour huge amounts into U.S. equities as they chase the AI dream.
This is fine, until it's not. Nervousness around the huge cost of the AI buildout is beginning to ripple through Wall Street, with the "SOX" chip index down 20% in the past month. If this continues, or if foreign investors get twitchy, Houston, we could have a problem.
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