<Today's Opening Bell Must-Knows_12/5 Bloomberg>
1) Shock of Martial Law May Subside, But Market Impact Could Linger
Although President Yoon's declared state of emergency lasted only a little over six hours, its impact on global investors in the Asia region could continue for some time. The dollar-won exchange rate (REGN), which had surged by more than 40 won during trading to reach the 1,440 won range, stabilized sharply on Wednesday and fell back to the 1,410 won range. Volatility in the options market for one-month contracts also declined somewhat. Luis Estrada of RBC Capital Markets noted that "considering low liquidity until the end of the year and transition risks such as Trump's mass tariffs early next year, it will be difficult for trust in Korea to recover immediately." Sat Duhra of Janus Henderson Investors said, "It seems like a political gamble has failed" and added, "I won't make any further investments in Korea under these uncertain circumstances." He pointed out that many foreign investors already avoid Korea due to the so-called Korea discount, and this news will only strengthen that sentiment.
2) Collapse of French Prime Minister Borne's Cabinet
The far-right National Rally (RN) led by Marine Le Pen joined forces with the left-wing bloc to bring down the cabinet of French Prime Minister Michel Borne. The prolonged political deadlock surrounding the budget bill could exacerbate investor anxiety. However, they clarified that they would not demand Macron's resignation and are prepared to draft a "universally acceptable" budget. Due to investor concerns over the political turmoil in France, 10-year French bond yields have surpassed those of Spain and Greece as investors recently dumped French government bonds.
3) Powell: 'Prudent Interest Rate Cuts Possible'
Jerome Powell, Chair of the Federal Reserve, explained that the Fed's monetary policy allows for caution while lowering benchmark interest rates to a neutral level. Although inflation has yet to reach its 2% target, he noted its continued improvement and described the "remarkably strong" US economy as having no reason to cease growing. Powell also expressed confidence in maintaining good relations with the incoming administration, including Scott Bwent, nominated by President-elect Trump for Treasury Secretary. The Fed's Beige Book reported that US economic activity, which had remained largely unchanged over the past few months, picked up slightly in November, particularly as US businesses exhibited a more optimistic outlook on demand.
4) Lagarde: 'Inflation Fight Nearing End'
Christine Lagarde, President of the European Central Bank (ECB), argued that while the fight against inflation is nearing its end, it has not yet been fully won. She stated, "While the fight against inflation is almost over, it's not complete, and our mission is not yet accomplished." She also pointed out the eurozone economy's continued vulnerability in the short term and highlighted uncertainties and downside risks surrounding the outlook. With expectations that the ECB will lower benchmark interest rates by another 25 basis points at its meeting on the 12th, discussions are ongoing regarding the pace and extent of monetary policy easing. Dovish policymakers advocate for swift rate cuts and argue that rates should be lowered to a level sufficient to stimulate economic growth if necessary to prevent undershooting inflation targets.
5) BOE Governor Hints at Four Rate Cuts by Next Year
Andrew Bailey, Governor of the Bank of England (BOE), signaled that policymakers still consider four 25 basis point rate cuts by next year as the most likely scenario, following his statement that inflation has declined faster than anticipated. Bailey remarked, "We always present our outlook on market interest rates conditionally, so as you rightly said, it was essentially reflecting market sentiment." Money markets raised their expectations for rate cuts by the end of 2025 from 82 basis points to 87 basis points immediately following Bailey's statement. This indicates that investors anticipate three to four rate cuts.
(Source: Bloomberg News)
