A contraction in inventory has continued to be drag on Korea's industrial production for the 4th straight month, falling -0.27%YoY(-0.18%MoM) in June. Accordingly, the average capacity utilization rate for manufacturing fell to 71.3% from 71.6%, hitting its lowest level since February. This slowdown in industrial activity may jeopardize the BOK's growth forecast in the near future while geopolitical events and tightening concerns have reduced the focus on the local economic data.
I expect the industrial production in July to fall 1.41% in YoY terms(+0.12%MoM), mostly due to the inventory contraction. The data tomorrow should do little for fixed income market as investors are waiting in case there will be any surprise policy hits from the BOK's press. Should the data shows significant slowdown in the industrial activity, it may add to the likelihood of dovish press but is unlikely to impact on current low volatility.
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