Are there more people who will buy U.S. bonds? CATL and Gotion Hi-Tech are both in the same industry, but the problem is, should we prepare for the stock market to plummet? One common question from our subscribers is about this. So, let's start with that question today. There are rumors that there is nowhere else to buy U.S. bonds. Will there be more people to buy U.S. bonds? This was the question. Perhaps it's because the issuance of U.S. bonds has surged, and recently, China has been selling U.S. bonds heavily. Also, in reality, from the end of 2021 to March 2024, China sold U.S. bonds worth a whopping $2,730 billion. There are even evaluations that they are deliberately selling U.S. bonds.

If government bond prices fall, it's only them who suffer losses, why would they do that? And also, if Japan sold $13 billion worth of bonds during the same period based on that logic, it doesn't mean Japan decided to break up with the U.S. First of all, U.S. bonds are the closest thing to a perfectly safe asset in the world, remember that. The reason South Korea went bankrupt during the IMF era was because they couldn't repay the principal and interest on dollar loans. But the U.S. lends in dollars, so there is no reason to be short on interest payments. Just wait a moment, exchange the dollars with the U.S., and issue new dollars. That's why the term risk-free came about. Because it is the most perfect safe asset, even if someone sells aggressively, the price won't drop significantly.

Safety is always essential as there is a constant demand from important institutions. The UK purchased $79 billion, Luxembourg $72 billion, France $59 billion, and Belgium $46 billion. Surprisingly, despite Japan and China's total selling volume, there was more buying. When the two axes meet, the Fed releases the treasury bonds it holds into the market and collects cash instead. Nevertheless, due to a solid demand base in the US, US treasuries could maintain their strength. The amount of US treasuries held by the Fed decreased by $114.8 billion compared to 2021. While quantitative tightening was taking place, the Fed's share of US treasuries decreased from 26% to 18%. However, during the same period, US household holdings of US treasuries amounted to $16.54 trillion. This is rather cute.

Even after offsetting the amount coming out and emphasizing the remaining scale, U.S. Treasury bonds are theoretically the safest asset as long as they maintain the status of the key currency. The default risk is close to zero, so there is always fundamental demand. Think about it, Isu. If an institution managing savings or pensions for retirement invested in coins and lost all the money, it would be a big problem, right? That's right. That's why pension funds do not engage in risky investments. They prefer U.S. bonds, which are safe and provide good interest. It's unlikely to happen, but if someone sells wildly and prices drop, then someone else will inevitably start buying. Understanding this flow is crucial. So, let's get back to the main topic. Last week, there was a unique trend in the power-related sectors and cosmetics.

The strong rebound in secondary battery stocks, which had been marginalized, while the leading stocks showed signs of weakness, seems to be noteworthy. There were some positive news for the power-related stocks that had been showing strength. However, news of a strike at the second largest and fourth largest copper mine in North America, Hudbay's Copper Mine in Canada, emerged. Typically, when copper prices rise, cable companies generate asset valuation gains. However, this news did not help at all. Not only that, but power-related stocks in the U.S. also showed a sympathetic downturn. Eaton, Hubbell, and GE changed their direction to decline. In the U.S., profit-taking sales emerged in power consumption-related stocks. There seemed to be relatively clear reasons for the decline in cosmetics-related stocks that also showed weakness along with power-related stocks. It seems like there were relatively clear reasons for the decline in cosmetics-related stocks that also showed weakness along with power-related stocks.

The embassy urged the Korean government to be cautious in its stance on Taiwan and the South China Sea issue, which seemed to have caused a decline in Chinese-related stocks, including cosmetics. Well, but the recent strength of cosmetics-related stocks was not because of China, so it seems a bit unfair. With the increasing preference for beauty in regions outside of China, sales have been rising. So, there was no reason for stock prices to adjust just because of what China said, as before. On the other hand, secondary shareholders who have been holding for the long term have shown strength for a change, and there was indeed a reason for it. Would you mind explaining a bit, Isu? It was because of the news that U.S. Republican senators and congressmen, as well as a special member of the Chinese Communist Party, jointly sent a letter to President Biden. In the letter they sent, it stated this.

It was written in the export list to upload China's CATL and Cocton Hi-Tech, the reason being that it violated the Uyghur Forced Labor Prohibition Act that came into effect in June 2022. The Uyghurs reside in Xinjiang, one of the largest regions in China, and most of them are Muslim. Therefore, the Chinese government has severely persecuted the Uyghurs, fearing that they might rebel. The U.S. has started imposing sanctions on this issue. Subsequently, products likely produced through forced labor of the Uyghurs, as well as products that even partially utilize raw materials or labor from Xinjiang in the production process, have been subject to import restrictions. However, the problem is that both CATL and Cocton Hi-Tech, mentioned in the document, belong to what industry? The secondary battery industry.

Due to the industry, our secondary battery could only show strength if they are controlled, which could cause reflex damage. So, shall we check the economic indicators this time? First, the employment trend that the Fed is constantly monitoring was announced. In May, the US Department of Labor reported an increase of 272,000 jobs in the non-agricultural sector. This figure, calculated by the Wall Street Journal, far exceeded the experts' expected increase of 190,000 jobs, leading to an immediate sharp rise in interest rates. According to the FedWatch tool of the Chicago Mercantile Exchange, the probability of a rate cut in September by the Federal Reserve fell from 70% the day before to 56%, significantly reducing the expectations for a rate cut. As a result, bond yields rose by a significant amount in just one day, with the 10-year and 2-year yields each rising by 15.

The bond market moved sharply, but despite that, the U.S. stock market held up relatively well over the weekend. So, I was curious how the U.S. market managed to close in a slightly positive range, considering the interest rates surged and stock prices fluctuated. Nowadays, when looking at the market, the concern about B is good good not being well reflected is emerging. For example, if there are signs of a slowdown in the labor market, expectations of an earlier interest rate cut could increase, leading to a rise in stock prices. Yes, that's right. However, recently, with the fear growing that a slowdown in the labor market could signal an economic downturn, the strong rise in stock prices could not be sustained. It seems like the opposite scenario was created over the weekend as the labor market showed signs of heating up again, which is why a rate cut in September.

Expectations were greatly lowered, so the stock prices should have undergone a correction. However, on the other hand, highlighting the healthy economy, the stock prices remained unchanged. It's really hard to predict for sure. The problem is that our stock market is more sensitive to interest rate changes compared to the US market. Therefore, we should start with a bit of caution from the beginning of the week. The main reason for the recent rise in our stock market was the decrease in interest rates. The US ISM manufacturing index and GDP plummeted, and the initial jobless claims from the US Department of Labor also dropped to around 8 million, easing the labor supply shortage in the robust US labor market. This led to the expectation that US bond yields would decrease over the past 7 trading days, with a 35 basis points drop in the 10-year bond yield.

The point or the decline in the stock price was seen as a trigger for the stock price rise. However, what happened right after the employment companion was announced over the weekend? On that day alone, the stock rose by 15 basis points again. So, at least in the early trading, you should start with a bit of caution. Should we prepare for a significant drop in stock prices? Well, it doesn't seem like it will plummet without any reason. On June 13th at 3 a.m., the June FOMC results will be announced, and on the night of the 10th, the May CPI will be released, followed by the May PPI on the night of the 13th. With such significant events approaching, there won't be many brave hearts confidently betting heavily in one direction. Among them, it seems that the focus of June FOMC investors will be on interest rates. What are your expectations, sir? Perhaps hints about the first rate cut by the FOMC in July or September.

There are no significant changes expected, so it is natural to think that the interest rate will be maintained. Therefore, I believe that the economic outlook and dot plot of the Federal Reserve will be more important. Regarding the economic outlook, in March, the GDP growth rate for this year was forecasted to be around 2.1%. It was adjusted upward to the mid-2% range recently. Considering the forecasts of major research institutions, there is a high possibility that the GDP growth rate forecast will be slightly revised upward. Looking at the dot plot, in the dot plot from March, the interest rate at the end of 2024 was seen at 4.6%. Furthermore, the interest rate at the end of 2025 was indicated to be 3.9%. Will there be some changes this time? Of course, there will be. However, even if there are changes, it is unlikely to have a negative impact on the market. The global financial market has already somewhat anticipated that the number of interest rate cuts within the year will be limited to one since the end of April.

So, since investors already know everything, even if there are changes in the dot plot, they won't be disappointed. Powell, the Fed chairman, could make slightly dovish remarks at the press conference this weekend due to the employment figures from last week, but that also is unlikely to have a significant impact on the market. Canada and the ECB have already cut interest rates recently, so it's only a matter of time, and the Fed will have to join the trend of rate cuts. The market is well aware of this. Especially since the U.S. PCE price index has already reached 2%, there isn't really a solid reason for the Fed to insist on high-interest rates. The next important indicator is the May U.S. headline CPI, which will be released on June 12th. The market consensus is that the year-on-year core CPI will increase by 3.4% and the headline CPI by 3.5%. Israel and Hamas.

Due to concerns such as the easing of Middle East tensions following ceasefire negotiations and a downward adjustment in GDP for the first quarter, triggered by worries about a slowdown in oil demand, oil prices dropped by more than 6% in May. This has somewhat alleviated the burden on energy prices. However, on the other hand, there is a high possibility that prices in the service sector, including sticky housing costs, medical expenses, and transportation, will continue to remain robust, and there is no significant change in the existing view that inflation will gradually soften at a very mild pace of below 3%. As this is still a key indicator being observed in the market, as long as it does not deviate significantly from the consensus, it is likely to have a neutral impact on the market. Now, finally, we have news about Apple's Worldwide Developers Conference. Scheduled to take place from June 10th to 14th, Apple will unveil new operating systems such as iOS 18, iPadOS 18, and macOS at this event.

It is a plan. It is expected that Siri, equipped with generative AI technology, will be unveiled with improved performance. Considering the report that Apple is in discussions with OpenAI, Google, and others, the possibility of using GPT in Siri's operation seems quite high. Apple, which has been criticized for falling behind in AI, recently saw its stock price rise. The reason is that although they are not developing AI themselves, they announced that they will use what has already been developed. This shows that in the U.S., consideration for AI has a significant impact on stock prices. It is also important not to overlook the fact that as Apple rises, related stocks in Korea are also improving. Today, we have discussed a lot. It was nice to start with the first question. That's it for now.

I hope you have a good time, and if you want to share insightful stories next time, please like, comment, subscribe, and turn on notifications. Well then, goodbye.

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