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“Inspiration usually comes during work, rather than before it.” – Madeleine L’Engle
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
It’s already been a busy week for employment-related news, and most of it has been good. This morning’s labor report will trump all the other reports and help dictate the direction of the markets heading into the weekend and whether the current streak of weekly gains extends to double digits. Wherever the report comes in, though, remember that it is only one snapshot of a much larger mosaic. Odds are it will be revised multiple times over the next several months (years).
Heading into the last session of the week, equity futures are mostly lower. The Nasdaq is indicated to gap down more than 1%, while S&P 500 futures point to a 0.5% decline, and the Dow is indicated slightly higher. If all of this sounds familiar, it’s because the setup was the same yesterday. There are not really any catalysts to blame for the weakness, except that investors are growing increasingly apprehensive about putting new money to work after the massive tech rally and a coming avalanche of supply.
Outside of equities, treasury yields are modestly lower, with the 10-year yielding just below 4.47%. Oil is slightly higher with WTI at $93.25 per barrel as prospects of a peace deal with Iran continue to dangle just over the horizon that we can never seem to reach. Gold is slightly lower, and Bitcoin is down another 2% and approaching $62K.
In Asia, markets closed out a mostly negative week on a down note, with the Nikkei and Hong Kong falling over 1% while South Korea plunged 5%. In Europe, markets are moving in the other direction. The STOXX 600 is up 0.3%, led higher by Spain, which is up 1%. The gains come despite Q1 GDP being revised from growth of 0.1% to a contraction of 0.2%. That was the first negative quarter for the region since 2021.
Besides the declines in Asian stocks overnight, the Japanese yen and South Korean won have been weak. Just weeks after the BoJ intervened in the market to defend the currency, the yen has resumed its slide, pushing towards a psychologically important level of 160 versus the dollar. In South Korea, the won has shown steady weakness against the dollar for over a year now (rising line in chart), and just last night traded at its weakest level versus the dollar since 2009.
Many comparisons have been made between the current market environment and the late 1990s, and weakness in Asian currencies can just be added to the list. In 1997, we had the Asian currency crisis, which spawned a global market sell-off, so it’s only natural to raise an eyebrow when you see headlines about the South Korean won hitting multi-year lows versus the dollar.
A look at the long-term chart for the won, however, shows that at this point, the decline looks nothing like the weakness we saw in 1997 and 2008. In both of those periods, the weakness went parabolic, whereas the current period of weakness has been a steadier grind. If the slope of the line starts to steepen, though, put on your seatbelt.
While the won has been weakening, the rate of decline hasn’t been nearly fast enough to offset the rabid gains in the South Korean equity market. Over the last year, the iShares MSCI South Korea ETF (EWY) has more than tripled, rising from around $60 to over $200 earlier this week, and just under $195 in pre-market trading today. At these levels, EWY is holding right at the levels it was after its gap higher in late May after the Memorial Day weekend. If these levels can hold, the recent pullback will look benign, but even after this pullback, prices remain extremely elevated.
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