[Good Morning Stock Market] Powell Issues Emergency Statement on COVID-19... "Domestic Market Rebound Expected"

Jerome Powell, Chairman of the U.S. Federal Reserve (Photo by AP Yonhap News)

[Asia Economy Reporter Kum Boryeong] As the number of confirmed cases and deaths from the novel coronavirus infection (COVID-19) continues to rise daily, pandemic fears are spreading. In response, Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), issued an emergency statement on the 28th of last month (local time) announcing that appropriate monetary policies would be implemented to support the economy.

◆ Jang Hee-jong, Hi Investment & Securities Researcher = Following continued weakness in the U.S. stock market last Friday, the Fed issued a brief four-sentence statement late in the day. It stated, "The Fed will appropriately use tools and take actions to support the economy," which immediately led financial markets to reflect expectations of future interest rate cuts. The decline in risk assets narrowed, and the downward trend in market interest rates continued further. Although the Fed’s brief statement calmed the market’s sharp decline, given the ongoing spread of the epidemic, this response by the Fed is meaningful only as the 'beginning of policy response.' It will have a calming effect on the anxious market, but it clearly has limitations as a solution to the current situation.

Attention should be paid to the negative impact of the global spread of COVID-19 for the time being. The U.S. 10-year Treasury yield has fallen below historic lows, coinciding with a decline in expected inflation rates. Considering that in past economic recovery phases, expected inflation rates rebounded, concerns about the economic direction are increasing. Recent weakness in oil prices is also negative for expected inflation, especially as the decline in oil prices could raise credit concerns for U.S. shale companies. Attention should also be paid to the Organization of the Petroleum Exporting Countries (OPEC) meeting scheduled for the latter part of the first week of March. If COVID-19 is not contained soon, economic concerns may intensify, making a conservative approach centered on safe assets unavoidable for now.

◆ Seo Sang-young, Kiwoom Securities Researcher = The Korean stock market is expected to rebound last week, supported by Powell’s remarks that the Fed would take measures to ease financial market instability. Although fears are rising due to the rapid increase in global COVID-19 cases, which stirs concerns about economic slowdown, it is positive that the U.S. stock market may stabilize. Furthermore, concerns about high U.S. valuations have somewhat eased due to the recent sharp decline, raising expectations for a rebound buying wave. Additionally, the U.S. administration’s remarks increasing expectations for corporate and personal income tax cuts are also favorable. Considering that Bernie Sanders, one of the factors behind recent U.S. market volatility, suffered a significant loss to Joe Biden in the South Carolina primary, the possibility of Sanders’ strong performance on Super Tuesday on the 3rd has diminished, which is also positive.

Meanwhile, the sharp contraction in China’s economic indicators, with the manufacturing PMI dropping significantly from 50.0 to 35.7 and the services PMI from 54.1 to 29.6, increases the likelihood of active economic stimulus policies by governments worldwide, which is also favorable. Taking this into account, the KOSPI is expected to fluctuate between 1960 and 2100, and the KOSDAQ between 600 and 650.

This content was produced with the assistance of AI translation services.