▲ AI PRISM* Personalized Economic Briefing
* Editor's note: AI PRISM (Personalized Report & Insight Summarizing Media) is an AI-based personalized news recommendation and summary service developed with support from the Korea Press Foundation. It selects and provides six tailored news items by reader type.
[Key Issue Briefing]
■ Hawkish Tone at the Fed: Even after the U.S. labor market weakened sharply last month, Federal Reserve officials have made a series of remarks arguing that inflation is the more serious problem. Chicago Fed President Austan Goolsbee said that rapidly rising prices and living costs are the biggest issue, more so than any collapse in industry and jobs, while Cleveland Fed President Beth Hammack went as far as to argue that rates should be raised several more times. As a result, the market is taking the unusual view that the odds of a hold and of a 0.25-percentage-point hike at the September Federal Open Market Committee (FOMC) meeting are essentially even.
■ Nvidia Credit Fears Ease: Nvidia's strategy of teaming up with Wall Street to invest $500 billion (about 709.1 trillion won) in artificial intelligence (AI) data centers was received positively by the market. After CEO Jensen Huang drew a line by saying the company could provide support of up to 25% of an investment depending on the case, bond investors judged that the risk had lessened, even amid a controversy over "circular deals." Strong results from partners CoreWeave and Super Micro Computer also coincided, and market jitters appear to be subsiding.
■ KOSPI Volatility Eases: The KOSPI's "vertigo market," which has swung sharply up and down this year, is finding stability. With overheating in margin loans and leverage cooling, intraday swings have shrunk by more than half, and the ratio of advancing stocks has risen as the concentration in semiconductor leaders eases. Meanwhile, as the won-dollar exchange rate slipped to the 1,417 range, foreign investors who had turned away from Korean stocks are showing signs of returning, creating conditions for a rebound.
[News of Interest to Global Investors]
1. "Inflation Is the Bigger Problem" — Hawkish Voices Grow Louder at the Fed
- Key summary: Despite weakening U.S. employment data, Federal Reserve officials are placing greater weight on inflation risk. In a video released on the 11th (local time), Goolsbee assessed that U.S. economic growth is surprisingly stable, with consumers continuing to spend on the back of rising incomes and wages, and diagnosed that the layoff rate is extremely low given how extremely low the hiring rate is. Hammack said that moving rates by a single 0.25 percentage point does not have a major effect on the economy and that multiple hikes are needed, noting that the 4.1% unemployment rate is close to full employment. On the Chicago Mercantile Exchange (CME) FedWatch tool, the probability of a hold in September stood at 50.1% and that of a 0.25-percentage-point hike at 49.9%, showing the market evenly split as well.
2. Nvidia's "25% Support Cap" Calms Credit Jitters
- Key summary: Credit concerns surrounding Nvidia's large-scale AI infrastructure investment plan eased within a day. According to ICE Data Services on the 11th, the yield on Nvidia's 5.625% bonds maturing in 2056 fell 2 basis points to 113 basis points (1 bp = 0.01 percentage point) over comparable Treasuries, and the price of five-year credit default swaps (CDS) narrowed by up to 5 bp to an annual 72.11 bp. Morgan Stanley assessed that if Nvidia provides support at a level of at most 25%, third-party professional institutional investors would take the lead, dispelling concerns that the deals inflate revenue. Alongside this, CoreWeave's second-quarter revenue was $2.58 billion, up 112% from a year earlier. Super Micro's fourth-quarter revenue of $11.12 billion came in below the estimate of $11.55 billion, but its 17.5% gross margin and its fiscal 2027 revenue outlook raised expectations, and the two companies' shares rose as much as 15.53% and 8.7%, respectively, in after-hours trading.
3. "Vertigo Market" Halts — KOSPI Rebounds on Solid Earnings and Foreign Return
- Key summary: The KOSPI closed at 6,579.04 on the 12th, up 3.68% from the previous session, rising for a third straight session. It jumped as high as 6,668.43 intraday, triggering a buy-side sidecar for the first time since the 5th, and its intraday volatility fell by more than half, from an average of 7.10% last month to 3.45% in August. The KOSPI 200 Volatility Index (VKOSPI), known as the "fear index," closed at 56.49, dropping to the 50 range for the first time in about three months. The margin loan balance, which had swelled to 38.6329 trillion won on June 24, shrank to 27.4038 trillion won on August 4 before recording 30.0387 trillion won on the 11th. Foreign investors bought a net 2.8357 trillion won that day, driving the index higher, while Samsung Electronics and SK hynix rose 6.68% and 5.54%, respectively, settling in the 250,000-won and 1.5-million-won ranges.
[News for Reference by Global Investors]
- Key summary: As corporate bond rates jumped from the 2-3% range last year to the mid-to-high 4% range this year, companies are changing how they raise funds. According to the Korea Financial Investment Association, the rate on three-year AA- corporate bonds hit a year-high of 4.651% on the 24th of last month, crossing the 4.6% line for the first time in about two years and eight months, since November 2023. Large-company public corporate bond issuance this year came to 29.2037 trillion won, shrinking about 32% from 42.9760 trillion won in the same period last year and marking a four-year low, as Samsung Biologics (207940), Shinsegae Group and LX Group delayed or shelved issuance. Within the industry, some say the credit crunch feels more severe than the 2022 Legoland crisis.
5. KEPCO Bond Issuance Up 1.3-Fold — "Concern Over a Bond Market Black Hole"
- Key summary: Unlike the freeze in the corporate bond market, the volume of bonds issued by Korea Electric Power Corp. is surging. After issuing a total of 1.07 trillion won last week, including 290 billion won in two-year-and-nine-month notes and 780 billion won in three-year notes, KEPCO decided to issue an additional 200 billion won on the 12th, and its issuance since July alone has reached about 3.3 trillion won, already exceeding total issuance in the third quarter of last year (2.6 trillion won). The system marginal price (SMP) of electricity recorded 147.75 won per kWh on the 1st of this month and has since exceeded KEPCO's break-even point of 146 won every day, while its first-half operating profit of 4.9127 trillion won was down 16.6% from the same period last year. Analysts say that with the electricity tariff freeze continuing for a prolonged period, KEPCO has no choice but to raise short-term operating and investment funds through bonds, and with the rate on AAA-rated three-year KEPCO bonds rising to 4.183% on the 11th, concerns are mounting over a vicious cycle in which lower-grade corporate bond rates are pushed up as well.
6. Even Retail Sentiment Vanishes — Sub-A+ Non-Prime Bond Issuance Halved
- Key summary: Demand for corporate bond investment is diverging sharply by credit rating. According to the Korea Securities Depository, sub-A+ non-prime bonds issued in the public and private markets this year came to 5.9660 trillion won, down nearly half from 10.4490 trillion won in the same period last year. Analysts attribute this to reduced buying by IPO high-yield funds — the key buyers — amid a slump in the IPO market, compounded by defaults at JR Global REIT (348950) and JoongAng Group, which drove retail sentiment away. Still, sorting the good from the bad within ratings is expected to continue, as seen when SK ecoplant (A-), which held its book-building on the 22nd of last month, secured 987 billion won, more than nine times the amount sought.
▶Full article: KEPCO Bond Issuance Up 1.3-Fold — "Concern Over a Bond Market Black Hole"
▶Full article: "Construction-Type Private BT Guarantees Only Profit to the Private Sector With No Operating Risk" — Budget Office Opposes Expansion
