International oil prices have surged due to renewed military tensions between the U.S. and Iran and growing concerns over the disruption of shipping routes in the Strait of Hormuz and the Red Sea. West Texas Intermediate (WTI) closed at $82.49 per barrel on the 17th. [Reuters=Yonhap News File Photo] The theme of this week's market flow is "Energy Shock and the Divergence of Interest Rates."

Last week, Money Radar posed four questions: whether international oil prices would stabilize around $70 per barrel, whether the U.S. 10-year Treasury yield would climb above 4.5%, whether the semiconductor correction would remain limited to profit-taking, and whether the divergence between the Nasdaq and the Dow would continue.

The market's answer this week was clear: oil prices did not stabilize, U.S. long-term interest rates did not skyrocket, and the semiconductor correction spilled over into risk aversion across the entire technology sector. The divergence, where AI and semiconductors led the Nasdaq’s outperformance, has turned into a "reverse divergence," with semiconductor stocks dragging the Nasdaq down even further.

West Texas Intermediate (WTI) rose 15.5% from $71.41 per barrel on the 10th to $82.49 on the 17th. Brent crude also finished at $88.10 on the 17th, marking a weekly gain of approximately 16%. With the escalation of conflict between the U.S. and Iran compounding concerns over restricted transit through the Strait of Hormuz and blocked Red Sea routes, both benchmarks reached their highest levels since mid-June.

The $70 WTI level, which served as a focal point last week, did not act as a support level but rather as a launchpad for the surge. The market has begun to price Middle East war risks not as distant uncertainties, but as current costs affecting crude oil supply and transportation routes.

However, the response in the U.S. Treasury market was different. According to the U.S. Department of the Treasury, the 10-year Treasury yield rose from 4.56% on the 10th to 4.62% on the 13th, but fell back to 4.55% by the 17th. Despite oil prices rising by more than 15% over the week, the long-term yield actually declined by 0.01 percentage points on a weekly basis.

This can be interpreted as the bond market reflecting not only inflation risks stemming from oil prices but also the potential burden of war and tech stock corrections on the economy. Demand for safe-haven Treasuries and U.S. inflation data that were more stable than expected seem to have limited the transmission of rising oil prices into interest rates for now. However, if WTI remains above $80 for an extended period, the risk of a resurgence in inflation and long-term interest rates could increase again.

In the U.S. stock market, weakness in technology stocks was prominent. The Nasdaq Composite Index fell 2.9% over the week, while the Dow Jones Industrial Average saw a more limited decline of 0.9%. The pattern where AI and semiconductors led the Nasdaq’s rise has reversed into a structure where the liquidation of semiconductor stocks amplifies the Nasdaq’s losses.

South Korea raised its policy rate. The Bank of Korea’s Monetary Policy Board increased the base rate by 0.25 percentage points to 2.75% per annum on the 16th. This is the first rate hike in three years and six months since January 2023, and it was approved unanimously by all seven members of the board.

The Bank of Korea forecasted that inflation would remain above its target level for a considerable period while growth strengthens, led by exports and investment. It also cited risks to financial stability, such as rising house prices in the metropolitan area, increasing household debt, and high exchange rate volatility, as reasons for the hike. It stated that the timing and pace of further rate hikes would be determined after monitoring inflation, economic conditions, and financial stability.

The USD/KRW exchange rate fell from 1,501.4 won on the 10th to 1,480.4 won on the 16th. Stable U.S. inflation data, the Bank of Korea’s base rate hike, and expectations of capital inflows from SK Hynix’s American Depositary Receipt (ADR) issuance acted as complex factors supporting the won. However, with the surge in international oil prices and continued net selling of stocks by foreign investors, it is too early to conclude that the entry into the 1,480-won range marks a structural strengthening of the won.

The conclusion of this week's Money Radar is clear.

Oil prices have surged and South Korea’s policy rate has risen, but U.S. long-term interest rates have been pressured by economic risks and safe-haven demand. The market has begun to price in the risks of both inflation and economic slowdown.

The key points to watch for next week are three-fold.

First, it must be confirmed whether WTI can settle above the $80 level.

Second, it is necessary to see if the U.S. 10-year Treasury yield breaks through 4.6% again.

Third, it should be monitored whether the 1,480-won range for the USD/KRW exchange rate leads to net buying of Korean stocks by foreign investors.