“Wash shock” drags KOSPI below 5,000… sell-side circuit breaker triggered on “Black Monday”

Trump taps hawk Kevin Warsh as next Fed chair

Rate-cut hopes fade… global asset markets wobble

Exchange triggers KOSPI sell-side circuit breaker

Foreigners dump over 5 trillion won in KOSPI cash and futures

Won-dollar exchange rate jumps 24 won to close

“Liquidity tightening fears resurface… short-term volatility to rise”

The KOSPI closed on the 2nd below the 5,000 mark. The move is seen as reflecting diminished expectations for monetary easing after Kevin Warsh, a former Fed governor classified as a “hawk” (favoring monetary tightening), was nominated as the next chair of the U.S. Federal Reserve.

The KOSPI ended the session at 4,949.67, down 274.69 points (5.26%) from the previous trading day. During the session, the index plunged, triggering a temporary halt to program sell orders (a sidecar).

The Korea Exchange suspended the effectiveness of program sell orders in the KOSPI market for five minutes at around 12:31:12 p.m. after KOSPI 200 futures prices fell.

A KOSPI sidecar is triggered when the price of the most actively traded contract by volume among KOSPI 200 futures rises or falls by at least 5% and persists for one minute.

The move is attributed to concerns that Warsh’s nomination could weaken expectations for rate cuts and reduce liquidity in asset markets.

Earlier, U.S. President Donald Trump on the 30th of last month (local time) nominated Warsh, who is classified as a hawk, as the next Fed chair candidate.

Warsh, while serving as a Fed governor in 2010, publicly criticized then-Chair Ben Bernanke’s second round of quantitative easing (QE2), saying, “A central bank’s artificial lowering of interest rates is financial repression that transfers wealth from savers.”

After Trump nominated Warsh as the Fed chair candidate, global asset markets fell broadly over the weekend. On the 30th of last month, the Nasdaq fell 0.94%, while the S&P 500 and the Dow Jones Industrial Average declined 0.43% and 0.36%, respectively.

Prices of gold and silver, considered relatively safe-haven assets, also declined. On the same day on the New York Commodities Exchange, international gold prices plunged 11.38% in a single day, while silver prices tumbled 31.37%. Bitcoin also fell to the $70,000 level for the first time in nine months.

Foreign investors unloaded a wave of selling. In the KOSPI market, foreigners sold 3.2576 trillion won in the cash market and 1.7783 trillion won in KOSPI 200 futures. Institutions also posted net selling of 2.5173 trillion won. Retail investors alone recorded net buying of 5.6039 trillion won.

Major KOSPI market-cap stocks fell across the board. Samsung Electronics (-6.29%), SK Hynix (-8.69%), Hyundai Motor (-4.4%), LG Energy Solution (-4.52%), Samsung Biologics (-1.95%), Hanwha Aerospace (-4.69%), and HD Hyundai Heavy Industries (-4.52%), among others, were weaker.

The KOSDAQ also fell in the 4% range. The KOSDAQ ended at 1,098.36, down 51.08 points (4.44%) from the previous day. The KOSDAQ at one point fell more than 5% intraday.

Meanwhile, the won-dollar exchange rate surged by more than 20 won. In the Seoul FX market, the won-dollar rate ended daytime trading at 1,464.3 won, up 24.8 won from the previous trading day. The move is seen as driven by increased demand for dollars amid tightening concerns.

Jo Ain, an analyst at Samsung Securities, said, “With Warsh’s nomination to the chair position, concerns over liquidity tightening resurfaced, pushing up U.S. long-term Treasury yields and strengthening the dollar,” adding, “In the short term, stock-market volatility may increase and make investing more difficult, but we believe excessive concerns will gradually subside.”

Noh Jeong-dong, Hankyung.com reporter dong2@hankyung.com