El Niño Forecast Sparks Global Market Volatility and Stronger Inflation Expectations

The global capital market is experiencing a round of drastic volatility due to physical constraints and tightening financial conditions. Agricultural product prices have strengthened since January, with CBOT soybean oil, rough rice, wheat, and ICE No.2 cotton rising by 45%, 35%, 30%, and 24% respectively.

The stock market has also seen significant declines, particularly in the AI sector, which has recorded maximum drawdowns of 43%, 49%, and 30% for Samsung Electronics, SK Hynix, and Micron Technology. The Philadelphia Semiconductor Index has dropped by 20% in two months, while the South Korea KOSPI 50 Index has fallen by 29%.

The continuous rise in long-term US Treasury yields is another major risk factor, with the 30-year yield breaking through 5% and peaking at 5.31%, a new high since 2007. The US Department of the Treasury announced repurchase operations to stabilize US Treasury yield fluctuations, but long-term yields have risen instead.

A strong El Niño is expected to lead to agricultural output reduction, with major agricultural exporters in the Asia-Pacific region facing greater rainfall gaps and potential significant reductions in local agricultural output.