Following stronger-than-expected US jobs data for May, the market quickly lowered its bets on a Federal Reserve rate cut. Foreign media believe that the sharp drop in South Korean stocks and the won on Monday was one of the earliest reactions to the current strengthening dollar and the global capital repatriation to dollar assets, indicating a synchronized contraction in risk appetite.
The South Korean market was the first to be pressured.
South Korea's KOSPI index fell as much as 5.54% at the open on Monday, triggering a circuit breaker and a brief trading halt. The won fell below 1559 against the dollar, hitting a multi-year low. The article states that the South Korean market is highly dependent on overseas institutional funds, making it more likely to become the first destination for capital outflows given the sudden strengthening of the dollar and rising US interest rates.
The report noted that foreign investors had net sold approximately 22 trillion won worth of South Korean stocks over the past four trading days. The article defined this as a clear sign of risk aversion, rather than typical profit-taking.
Strong employment pushes up the dollar and US Treasury yields
The immediate cause of the market revaluation was the US employment data released last week for May. The number of new jobs reached 172,000, significantly higher than market expectations. Following the data release, market expectations for a swift interest rate cut by the Federal Reserve cooled, the yield on the 10-year US Treasury bond rose to 4.53%, and the US dollar index rose to 100.07.
Foreign media commentators argue that strong employment is not necessarily seen as a positive factor by the market in the current environment. This is because if employment and inflation remain resilient, the Federal Reserve may maintain high interest rates for a longer period, and global funds will be more inclined to flow back to US dollar cash and US bonds, rather than continuing to remain in emerging markets and highly volatile assets.
The demand for AI remains unchanged, but valuations are under pressure.
The article specifically mentions that South Korean semiconductor company SK Hynix is still expanding production, and demand for high-bandwidth memory has not weakened significantly. In other words, the fundamentals of the AI industry chain have not changed due to single-day market fluctuations.
However, when interest rates rise and the dollar strengthens, the market often adjusts valuations first, not orders. Foreign media believe this is why, even though AI demand remains, related stocks still fall along with the broader market. This appears more like a sell-off driven by macro liquidity than a repricing of the tech sector's prospects.
Gold and cryptocurrencies were not immune either.
The article also mentions that short positions in the US stock market are rising, while the bond market continues to face upward pressure on yields. Meanwhile, gold weakened after encountering resistance at previous highs, indicating that safe-haven assets have not completely escaped volatility.
The crypto market was also dragged down. Reports show Bitcoin was at $63,055, a 13.63% drop over seven days; Ethereum was at $1,667, a weekly decline of approximately 16%; and XRP was at $1.14. The total market capitalization of the crypto market is approximately $2.17 trillion, and the Fear & Greed Index is 15, close to the extreme fear range.
Foreign media believe that crypto assets are increasingly following global risk appetite fluctuations, no longer as relatively independent as they were a few years ago. If the US dollar continues to strengthen and long-term US Treasury yields remain high, global stock markets, gold, and crypto assets may continue to face pressure.
