[Good Morning Stock Market] Waiting for the FOMC... "Sectoral Differentiation Amid Inevitable Degree of Change"

[Asia Economy Reporter Lee Seon-ae] On the 12th, the domestic stock market is expected to be positively influenced by the sharp rise in the Nasdaq, centered on technology stocks. However, rather than a sustained upward trend, volatility is expected to continue ahead of next week's events.

In the New York stock market, major indices rose sharply, supported by improved U.S. unemployment data, the European Central Bank's (ECB) measures to curb bond yield increases, and President Joe Biden's signing of the $1.9 trillion stimulus bill. On the 11th (U.S. time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 32,485.59, up 188.57 points (0.58%) from the previous session. The Standard & Poor's (S&P) 500 index rose 40.53 points (1.04%) to 3,939.34, and the technology-heavy Nasdaq index surged 329.84 points (2.52%) to close at 13,398.67. The Dow continued its record-high streak, and the S&P 500 surpassed its previous all-time high recorded on February 16. The market closely watched U.S. unemployment data, Treasury yield trends, and the ECB's monetary policy decisions. With U.S. Treasury yields stabilizing, technology stocks regained strength, and the signing of additional fiscal stimulus supported investor sentiment.

◆ Seo Sang-young, Kiwoom Securities Researcher

The MSCI Korea Index ETF rose 2.99%, and the MSCI Emerging Markets Index ETF increased by 3.15%. The 1-month NDF USD/KRW exchange rate was 1,129.89 won, reflecting an expected 7 won decline at the start. The Korean stock market showed strong gains due to net buying by foreigners in both spot and futures on the futures and options expiration day. Particularly, the Chinese stock market showed strength in infrastructure and consumer goods sectors as the U.S. stimulus bill passed, bringing in economic normalization issues, which positively influenced the market environment. Meanwhile, the ECB's announcement to accelerate bond purchases stabilized yields, and this helped the Philadelphia Semiconductor Index rise 4.09% in the U.S. market, leading to a sharp rise in the Nasdaq, which is expected to positively impact the Korean stock market.

Additionally, the weakening of the U.S. dollar and rising international oil prices increased risk asset preference related to economic normalization, which is favorable. Furthermore, Coupang INC, the parent company of Coupang, surged 40.71% after its U.S. listing, reaching a market capitalization of approximately $84.47 billion (96 trillion won), which is expected to positively influence related companies' stock prices and indices. However, the spread of inflationary pressures and capital inflows into the U.S. stock market raise concerns about potential capital outflows from emerging markets to the U.S., which is a burden. Therefore, ahead of next week's U.S. and China real economy indicators and the Federal Open Market Committee (FOMC) meeting, rather than a continuous strong rally, a market with significant sectoral differentiation and volatility is expected to persist.

◆ Lee Jae-sun, Hana Financial Investment Researcher

The domestic stock market is likely to continue a volatile trend due to major countries' inflation and domestic demand indicators, which act as factors for interest rate direction, and ahead of the U.S. March 17 FOMC meeting. There is no clear trend of improving risk asset preference. The spread between the KOSPI and the 3-year government bond yield has been hovering in negative territory since the end of February (indicating a preference for safe assets), and the volatility index (VKOSPI) has ranged between 27 and 30 points since March, exceeding the historical level of 20 points. This suggests ongoing market participants' anxiety about interest rate direction. However, since the domestic index level burden has significantly decreased, if the U.S. Federal Reserve (Fed) signals a more accommodative stance than market expectations, there is a possibility of bargain hunting inflows. In January, the KOSPI and the 125-day moving average spread showed an overheated supply-demand pattern, exceeding the historical +2SD level, but after valuation adjustments since February, the spread has returned to average levels. From a style perspective, domestic demand stocks are expected to continue playing a defensive role.

◆ Kim Sung-geun, Lim Ji-woo, Kim Dae-jun, Korea Investment & Securities Researchers

The KOSPI is expected to continue a sideways trend. The simultaneous rise in interest rates and the USD/KRW exchange rate, as well as institutional supply-demand conditions, are all acting negatively. For a directional move, signals limiting the pace of interest rate hikes need to emerge at the FOMC scheduled for the 17th. However, although the index is generally sluggish, rotation into cyclical stocks continues, and this style rotation is likely to persist even after the FOMC. This is because the $1.9 trillion U.S. stimulus bill could further accelerate the economic recovery, and signs of intensified regulation on large tech companies are emerging.

The Biden administration's $1.9 trillion stimulus bill is nearing final approval. The House has passed it, and only the president's signature remains. Accordingly, federal unemployment benefits will continue, and $1,400 checks per person will be distributed. The $600 checks issued last December began distribution a few days after the president's signature. Similar to the large-scale stimulus passed in March last year, disposable income for consumers is expected to increase significantly this time as well. Particularly, the lower 20% income group with a high propensity to consume is expected to benefit intensively.

◆ Kim Yumi, Kim Ji-hyun, Kiwoom Securities Researchers

A notable event in the financial market is the U.S. FOMC. Attention is focused on the Fed's stance on the recent sharp rise in market interest rates, economic and inflation forecasts, and any changes in the dot plot. At the FOMC, the Fed is expected to reaffirm its previous position of maintaining the policy rate and a low interest rate environment. While concerns about the recent sharp rise in market interest rates will be expressed, the Fed is unlikely to take special measures because the negative impact of rising rates on the real economy is still limited, and there are no significant concerns about credit spreads or liquidity shortages. Economic growth and inflation forecasts may be revised upward. This is because vaccine distribution is progressing faster than initially expected, and the Biden administration's additional stimulus policies have been passed, which could reflect economic improvement effects.

In such an environment, if expected inflation rises higher, the inflation previously claimed to be temporary could materialize, making it difficult for the Fed to implement additional easing measures early. The Fed's dot plot indicating rate freezes until 2023 is expected to be maintained. Although additional stimulus policies and vaccine distribution could accelerate the timing of full employment or positive GDP gap conversion, it is necessary to observe whether the rebound in indicators is sustainable at this point, so the stance of maintaining rates until 2023 is likely to prevail. Overall, the FOMC is expected to maintain an optimistic view of the economy while reaffirming that it will not tighten early to minimize shocks to the financial market. However, since early responses to rising rates are also unlikely, market interest rate volatility is expected to continue for some time.

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