[Good Morning Market] "US Stocks Flinch at Interest Rates... Domestic Market Likely to Falter Too"

Profit-Taking Selling Pressure Centered on Tech Stocks
Domestic Stock Market Expected to Undergo Selling Absorption Process

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] The U.S. stock market showed signs of hesitation, mainly in technology stocks, following news that the June consumer price inflation rate significantly exceeded market expectations and a sharp rise in Treasury yields. The domestic stock market is also expected to see some profit-taking after recent gains.

On the 13th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,889.79, down 0.31% (107.39 points) from the previous day. The S&P 500 index fell 0.35% (15.42 points) to 4,369.21, and the tech-heavy Nasdaq index dropped 0.38% (55.59 points) to 14,677.65.

◆ Sangyoung Seo, Researcher at Mirae Asset Securities = The U.S. Consumer Price Index (CPI) for June rose 0.9% month-over-month and 5.4% year-over-year, the highest level since August 2008. The core CPI, which excludes food and energy, also increased 0.9% month-over-month and 4.5% year-over-year, the highest since 1991.

Following the release of these results, U.S. stocks declined and Treasury yields rose. The U.S. dollar also strengthened. However, despite the inflation figures exceeding expectations, the market managed to turn upward initially. This was largely because the inflation increase was seen as temporary, driven by a sharp rise in used car prices and significant increases in items related to economic normalization and gasoline.

However, after the 30-year U.S. Treasury auction ended, yields began to surge again. The bid-to-cover ratio was 2.19 times, below the 12-month average of 2.33 times, and indirect bids were 61.1%, below the 12-month average of 62%. News of weakening bond demand caused the 10-year yield to jump above 1.4%, expanding the rise. Subsequently, profit-taking occurred mainly in technology stocks.

News of expected difficulties in passing infrastructure investment legislation also dampened investor sentiment. This is presumed to be due to Senator Joe Manchin of the Democratic Party opposing Treasury issuance related to funding.

The domestic stock market is likely to feel the burden as the U.S. market falters. In particular, the expanded rise in interest rates has led to weakness in technology stocks, including the semiconductor sector, while economically sensitive stocks have weakened due to the spread of the Delta variant, and infrastructure stocks have underperformed, all of which are expected to have negative effects. The record-high U.S. core CPI may also weigh on foreign investor flows.

Considering this, some profit-taking is expected in the domestic market following recent gains. Afterwards, the market is expected to digest selling pressure with limited declines amid anticipation of remarks from Jerome Powell, Chair of the U.S. Federal Reserve.

◆ Jinji Jeong, Researcher at Yuanta Securities = The KOSPI is expected to return to a trading range. Although the KOSPI fell sharply late last week, it rebounded at an important long-term trend inflection point, which is positive. If the short-term rebound continues, the June high around 3,160 points will act as strong resistance, while the recent short-term low near 3,200 points will serve as support as the market seeks direction.

In the short term, the market’s direction is sensitive to foreign investors’ futures trading trends. Last week, foreign investors net sold about 19,000 contracts, and by the end of the previous week, the cumulative net long position turned to net short for the first time since April 12. This week, however, they net bought 14,000 contracts over two days, increasing the cumulative position to 11,000 contracts, suggesting the possibility of further gains.

However, during strong rallies like that in November last year, cumulative net buying exceeded 30,000 contracts. Recently, the number slightly surpassed 30,000 contracts at the end of June before declining again. Therefore, the current level of foreign investors’ net futures buying is more consistent with a modest upward phase within a trading range rather than a full-scale rally.

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