[Good Morning Stock Market] Uncertainty Over US Interest Rate Hike Eases... Will KR Stock Market Gain Upward Momentum?

US Stock Market Rises Despite Tapering Announcement
Powell's 'Patience on Rate Hikes' Remarks Positively Reflected

Financial Sector Expects Rate Hikes to Start Late 2022 to Early 2023

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Minji Lee] As the Federal Reserve (Fed) officially announced the end of its monetary easing policy, and the U.S. stock market closed higher due to the resolution of uncertainty over interest rate hikes, there are forecasts that the domestic stock market will also show an upward trend.

Sangyoung Seo, Researcher at Mirae Asset Securities: “U.S. stock market rise will lead to a rise in the domestic stock market”

The U.S. stock market ended higher despite the Federal Open Market Committee (FOMC) announcement of tapering asset purchases. Fed Chair Powell’s remarks on tapering adjustments and patience regarding interest rate hikes appear to have attracted investment sentiment toward risk assets. The Nasdaq index rose 1.04% the previous day, while the Dow Jones and S&P 500 closed up 0.29% and 0.56%, respectively.

The Fed announced tapering at the FOMC, planning to reduce monthly purchases of $10 billion in Treasury securities and $5 billion in mortgage-backed securities. This will start at the end of this month and continue over eight months. Along with the tapering announcement, the Fed mentioned that reducing purchases at a similar monthly pace is appropriate but is prepared to adjust the pace if economic outlook changes, which the market received positively, expanding gains. Additionally, the Fed noted there is no evidence of a sharp rise in inflation but is watching carefully and that it is not yet time to raise interest rates, which also positively influenced the market. When the FOMC announced tapering on December 18, 2013, then Fed Chair Bernanke stated that Treasury purchases would be conducted according to unemployment and inflation conditions, leading the stock market to fluctuate around flat before surging.

The domestic stock market is expected to show an upward trend, supported by the rise in the U.S. stock market. However, considering the December 2013 case, the possibility of a reduced gain should also be taken into account. At that time, selling pressure emerged due to foreign exchange market influences such as the won-dollar exchange rate, which caused gains to be given back. Unlike the past when asset prices rose due to liquidity, future changes are expected to depend on corporate earnings and economic conditions, so the domestic stock market is expected to show strength centered on sectors with upward earnings estimate revisions.

Gyuyun Jeon, Researcher at Hana Financial Investment: “Interest rate hike timing late 2022 to early 2023”

Fed Chair Powell distinguished tapering from interest rate policy by stating that the start of tapering is not a direct signal for rate hikes and that there are no plans to raise rates until the labor market recovers.

The announcement of the tapering plan and the reduction scale meeting expectations reduced uncertainty, which is positive for the market. Due to inflation uncertainty, the market is pricing in two rate hikes next year, but since current inflation pressures largely stem from supply-side issues, Fed officials’ patience is expected to continue for the time being.

Considering lower maintenance costs and others, inflation is expected to gradually ease in the first half of next year. If long-term inflation moves within the expected path, the Fed is expected to set the timing of rate hikes while pursuing employment recovery, with the timing projected to be late 2022 to early 2023.

Sanghyun Park, Researcher at Hi Investment & Securities: “Early resolution of bottleneck economic risks is crucial”

Although tapering risks have been largely resolved, the issue is how early the bottleneck economic phenomenon, which Fed Chair Powell cited as the main reason for inflation being temporary, will be resolved. If the bottleneck economy persists longer than the Fed expects, inflation could last longer than anticipated and burden the economy. The Fed has acknowledged its policy response capability is weak regarding the bottleneck economy.

It is positive that bottleneck economic conditions are partially easing, such as some stabilization in energy and raw material prices. Nevertheless, whether bottleneck conditions ease by year-end and early next year remains a critical issue for the global economy and financial markets, requiring continuous attention. Additionally, Powell’s reappointment could influence monetary policy uncertainty risks and should be kept in mind.

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