US 10-Year Yield Tops 5% a Day Before FOMC, KOSPI Battles to Hold 6,600 Line

A day before the FOMC decision, the KOSPI shook off intraday volatility to widen its gain from around 0.6% to as much as 0.8%, moving through the 6,670 to 6,685 range. The rebound followed four consecutive days of declines, but trading value itself fell sharply, with many market participants seen adopting a wait-and-see stance ahead of the outcome. The KOSDAQ briefly extended its losses during the session before paring the decline to around 0.5%, trimming its drop to near the 807 level.

Foreign investor flows remain skewed toward selling. Foreign investors sold more than 1.1 trillion won on the exchange alone, extending their net-selling streak to a sixth consecutive session, and have now sold more than 1 trillion won per day for five straight sessions. In the KOSDAQ market, foreign investors also posted net sales of roughly 80 billion won. In the futures market, however, foreign investors turned net buyers for the first time in five sessions, diverging from the spot market trend, prompting calls for closer monitoring going forward. The won-dollar exchange rate turned higher again to around 1,367 won, with some forecasts suggesting that exchange rate volatility could widen depending on the stance the Bank of Japan takes in its rate decision scheduled for the 19th.

The most important event is the US Federal Reserve's policy rate decision, scheduled for 3 a.m. Korea time, followed by Fed Chair Jerome Powell's press conference starting at 3:30 a.m. The market is focused less on the rate move itself and more on the commentary regarding the economy and inflation that follows. The scenario participants would welcome most is a rate hike as expected combined with reassuring remarks on future inflation and growth — a so-called dovish hike. However, concerns were also raised that, given the recent trend toward shorter press conferences, commentary this time could likewise be limited.

Despite the negative backdrop of surging US Treasury yields and a weaker won, earnings consensus for Samsung Electronics and SK Hynix is rising rather than falling. The market's annual operating profit forecast for Samsung Electronics has climbed from around 101 trillion won three months ago to 112.8415 trillion won recently, an upward revision of more than 12 trillion won. SK Hynix's forecast has likewise risen from 75 trillion won three months ago to 78.1291 trillion won currently. The sharp rise in memory chip prices was cited as the key driver behind the upward earnings revisions.

Samsung Electronics' foundry plant in Taylor, Texas, originally targeted for full-scale operation in November, has reportedly already begun trial production as customer demand to secure supply has intensified. The company plans to complete mass-production verification by year-end and begin full-scale product supply starting next year, with the Taylor plant's utilization rate currently known to be approaching 30%. If the pace of the utilization rate increase accelerates, the timing of the foundry division's turn to profitability could also be moved up. That said, some analysis suggested that the foundry division's return to profitability in the third quarter could be difficult given the depreciation expenses associated with the Taylor plant.

Apple has reportedly agreed to accept memory pricing from Samsung Electronics that is roughly 30 to 40% higher in the first quarter of next year compared with the third quarter of this year. Given that Apple had reportedly explored sourcing memory from Chinese suppliers recently, the outcome is being interpreted as Apple ultimately accepting the price increase terms set by Samsung. Because Apple products such as the iPhone contain numerous Samsung Electronics components, including substrates, displays, and memory, this price adjustment is being read as reflecting both a decline in Apple's negotiating leverage and an improvement in Samsung Electronics' profitability.

A report indicated that the timing of an initial public offering (IPO) for Boston Dynamics, in which Hyundai Motor has invested, could remain uncertain even through 2027. The key factor is support for large-scale mass production of the Atlas humanoid robot — the company would need to begin generating profit through mass production for its corporate value to peak, enabling an IPO, but that timing appears likely to be pushed back. The report cited remarks from a senior company executive who spoke on condition of anonymity, and noted that other humanoid robot projects, including Tesla's Optimus, are also seeing slower-than-expected progress toward mass production, fueling analysis that the timeline for commercializing humanoid robots is being delayed industry-wide.

Power equipment and cable-related stocks also stood out with gains. Shares related to LS Group affiliate LS Eco Energy jumped from the morning session on news that the company, in collaboration with Gaon Cable's US subsidiary, had recently completed supply of underground cables to a large-scale US solar power plant. The power equipment theme has recently been moving in tandem with issues surrounding US-bound investment and the energy value chain, warranting continued attention.

DRAM prices have nearly tripled since the start of the year, while NAND prices have roughly doubled. Driven by this sharp price increase, semiconductor exports totaled $16.5 billion from September 1 to 10, up 65% from the same period a year earlier. If this trend continues, total semiconductor exports for September are estimated to reach around $60 billion, which, even accounting for the reduced number of working days due to the Chuseok holiday, would represent an increase of roughly 28% from August.

The rise in memory prices and strong export performance were cited as supporting evidence that brokerage earnings estimates for Samsung Electronics and SK Hynix are likely to continue rising going forward. It was also noted that BlackRock's recent report recommending increased exposure to emerging market equities, particularly Korean stocks, was underpinned by the logic that corporate earnings growth is outpacing the rise in interest rates. The view was that once uncertainty over interest rates is resolved, market attention will naturally shift to the earnings season running from late September into October.

The US 10-year Treasury yield closed at 5.006%, its highest level in 19 years. The surge was not confined to the US: Japan's 10-year yield hit its highest level since 1996, the UK's 10-year yield its highest since 2007, France's 10-year yield its highest since 2008, and Germany's 10-year yield its highest since 2009, marking an unusual episode of global bond yields rising in tandem. The surge in international oil prices was seen as stoking inflation concerns and adding further upward pressure on long-term rates.

A weak demand showing was confirmed at the day's 20-year US Treasury auction. The bid-to-cover ratio came in at 2.57, below the recent six-month average of 2.65, and the auction was awarded at a yield of 5.42%, higher than the pre-auction expected yield of 5.40%, resulting in a so-called tail. The share of the auction awarded to foreign investors fell to 52%, down from 62% a month earlier and an average of around 68%, an indication that demand for US Treasuries from major overseas investors has notably weakened. With the resulting gap in overseas demand being absorbed by direct retail bids (roughly 30%) and domestic institutional investors, concerns were raised that long-term Treasuries could face additional rate pressure as they compete for funding with corporate bonds, including those of big tech companies.

US Treasury Secretary Scott Bessent, testifying before the House Financial Services Committee the previous day, attributed the surge in the 10-year yield to global factors such as the spike in international oil prices as well as concerns over the United States' massive fiscal deficit. He characterized the Treasury's bond buyback program as a success, though some on Wall Street voiced skepticism toward that assessment, noting that long-term rates had in fact risen further after the buyback program was implemented.

In a report analyzing whether the US 10-year yield's move past 5% signals a bubble collapse, KB Securities analyst Lee Eun-taek noted that historical precedent suggests bubble-collapse conditions are met when the 10-year yield trends past the 5.0% to 5.3% range while accompanied by sticky core consumer price inflation. While the current move past 5% satisfies the first condition, he concluded it is premature to characterize this as a bubble-collapse signal, since a trending rise in core inflation excluding housing costs is not yet clearly evident.

Amid persistently elevated international oil prices, reports emerged that loadings had been halted at the port of Yanbu on Saudi Arabia's Red Sea coast. Along with reports that September crude export schedules bound for Europe had been postponed or canceled, and news that oil production and operations had also been halted in parts of Libya, concerns grew that disruptions to crude oil logistics were spreading across both the Gulf and the Red Sea. US West Texas Intermediate (WTI) briefly spiked to $106 to $107 during the session and is currently trading around $104, while Brent crude is trading around $108.

Goldman Sachs projected that if the current situation fails to stabilize, oil prices could rise as high as $120 per barrel. However, some in the market pointed out that despite the Houthi rebels' blockade of the Red Sea and Strait of Hormuz having reduced shipping volumes compared with the early stage of the conflict, oil prices have not surged proportionately, suggesting that futures market participants are pricing in a substantial probability of prices declining as well. The explanation offered was that the market is weighing both the possibility of a return to pre-conflict levels in the $70 to $80 range and the possibility of a spike to $120.

While reports emerged of some form of discussions between US and major Gulf state military commanders, no military solution or visible progress has been confirmed so far. President Trump has continued to suggest that a ceasefire with Iran could become possible once the US midterm elections conclude, which in turn could bring down oil and gas prices, but for now, oil-driven inflationary pressure is being assessed as weighing on both the bond and equity markets ahead of the FOMC decision.

Ahead of the Korea-US foreign ministers' meeting scheduled for the 18th, an exclusive report that a National Assembly briefing on the US-bound investment had been canceled the previous day fueled speculation that the Korea-US memorandum of understanding (MOU), originally expected to be signed this week, could be delayed. The broad framework agreed last year called for a total of $200 billion in US-bound investment, an annual cap of $20 billion, a 45-day review period for each project, and a so-called umbrella structure in which profits and losses across multiple projects would be consolidated and handled by a single top-level entity. However, disagreements have reportedly widened as the US side has recently raised a series of additional requests — including gas-fired power plants for data centers, the construction of eight new nuclear reactors, and participation in the Alaska LNG project — pushing the total beyond the cap and prompting the US to demand project-by-project individual settlement.

One of the key points of contention is the Westinghouse equity stake. The Korean side is reportedly seeking a stake and voting rights of around 15% to 20% in order to secure substantive decision-making authority over nuclear power exports, while the US side is offering a financial investment level of around 5%, leaving the two sides without common ground. With last year's agreement effectively constraining independent exports of Korean-model nuclear reactors, securing a Westinghouse stake is being discussed as a practical means of removing that constraint. The two sides are also said to hold differing views on the commercial viability of the Alaska LNG project.

Analysts pointed to President Trump's political calculus ahead of the midterm elections — seeking to highlight a large-scale investment achievement — as the driving force behind the US push to conclude the MOU quickly. From Korea's perspective, by contrast, there is little urgency to rush, and the view offered was that Korea should make full use of the 45-day review period to calmly work through key issues such as the equity stake and profit settlement structure.

Overnight, a cloture vote in the US Senate on the CLARITY Act related to stablecoins failed to clear the 60-vote threshold, garnering only 50 votes in favor. Passage of the CLARITY Act had been expected to expand stablecoin issuance and, through that, boost demand for US Treasuries, lending support to Treasury Secretary Bessent's strategy of balancing short- and long-term issuance. The bill's failure was accordingly cited as a factor that could further dampen Treasury demand and add to upward pressure on long-term rates.

A joint investigation and response unit has reportedly begun investigating a biotech company's headquarters and employees over suspected insider trading. The company's stock had repeatedly shown a pattern of sharp swings around each disclosure, with indications that insiders had purchased shares just ahead of disclosures and then immediately dumped their holdings once the disclosure pushed the price up. It was noted that even when genuinely positive news broke, the stock would wobble from the outset as insiders' pre-positioned buy and sell orders flooded the market first. Given that the president himself has stated that unfair trading in capital markets will be dealt with severely enough to embarrass the companies involved, legal penalties are expected to be strengthened, with calls for a full review not just of this case but of the company's entire trading history.

An exclusive report also revealed that a fund manager overseeing a KOSDAQ active fund at an asset management firm is under investigation by the Financial Supervisory Service on suspicion of front-running. The fund had drawn market attention for its active strategy of aggressively raising the weighting of promising stocks rather than simply tracking index weightings, but it was reported that, before the fund disclosed its holdings, the manager in question used hard-to-trace methods such as borrowed-name accounts and tethering to buy the same stocks in advance. The case was assessed as particularly serious given that it exploited the very mechanism by which the fund discloses its stock weightings to the market, effectively amounting to front-running against the market as a whole.

It was repeatedly emphasized that the asset management industry is fundamentally built on investor trust. Given that the term investment trust itself conveys the idea of investors entrusting their funds to a manager they trust, front-running that betrays this trust was described as an issue that undermines the credibility of the entire industry, not merely an individual manager's misconduct. Calls were made for disclosing the manager's identity, an official apology from the asset management firm, a full compliance review covering all fund managers, and even pursuing measures to disclose the identities of those responsible should similar incidents recur in the future.

Throughout the first half of this year, Hyundai Motor actively promoted its humanoid robotics business with Boston Dynamics, including through World Cup advertising. Yet the negative news that the IPO timeline has become uncertain surfaced not through an official company statement, but through a report citing remarks from a senior executive speaking on condition of anonymity. This was criticized as a strategic failure to fulfill the company's accountability to investors and the market — stepping forward when building momentum, but quietly leaking unfavorable news from behind a cloak of anonymity.

It was noted that an initial public offering, by definition, means opening up the company to attract investor capital, and therefore requires the company to present the market with a clear plan and accountable explanation to match. Given that many investors have made investment decisions based on Hyundai Motor's robotics business, the view offered was that top management needs to directly present a clear business plan in response to the uncertainty the company itself has created.