[Good Morning Market] Powell Renominated... Inflation Ahead of US Fed

Janet Yellen, US Treasury Secretary, "Inflation Has Reached the Concern Level of Most Americans"
Funds Flowing Mainly into US ETFs... Focused on Consumer Discretionary and Tech Sectors

[Image source=AP Yonhap News]

[Asia Economy Reporter Gong Byung-sun] Jerome Powell has been reappointed as Chairman of the U.S. Federal Reserve (Fed). However, with concerns about inflation expressed by U.S. President Joe Biden and Treasury Secretary Janet Yellen, market volatility is increasing.

On the 22nd (local time), the New York stock market was sluggish. At the New York Stock Exchange that day, the Dow Jones Industrial Average closed at 35,619.25, up 0.05% (17.27 points) from the previous trading day. However, the S&P 500 index closed at 4,682.94, down 0.32% (15.02 points) from the previous session. The tech-heavy Nasdaq closed at 15,854.76, down 1.26% (202.68 points) from the previous trading day.

◆ Seo Sang-young, Researcher at Mirae Asset Securities = President Biden announced before the market opened that he would reappoint Chairman Powell and nominate Fed Governor Lael Brainard as Vice Chair. President Biden said, “Because there is a need to rebuild the economy better, I am nominating Chairman Powell and Governor Brainard,” adding, “We will focus on price stability and full employment to make the economy stronger.”

As a result, the uncertainty surrounding the Fed is likely to be resolved. However, considering President Biden’s remarks expressing concerns about high inflation, a hawkish stance from the Fed is expected. The stock market initially rose on the assessment that uncertainty had been resolved, but due to the strengthening of the dollar and the widening rise in Treasury yields, profit-taking selling rapidly appeared mainly in large tech stocks in the afternoon.

Before the market closed, Treasury Secretary Yellen expressed concerns about inflation, which further widened the rise in interest rates. In particular, Secretary Yellen claimed that although the White House is doing its best to resolve bottlenecks, inflation has reached the level of concern for most Americans. She also mentioned that inflation was partially influenced by COVID-19, implying that factors other than COVID-19 are also at play. Following Yellen’s remarks, U.S. tech stocks declined.

(Provided by Hanwha Investment & Securities)

◆ Park Eun-seok, Researcher at Hanwha Investment & Securities = From October 15 to 19, the global exchange-traded fund (ETF) market saw inflows centered on U.S. ETFs. This is interpreted as a continuation of risk asset preference sentiment, with the Nasdaq hitting an all-time high. Additionally, there was significant inflow into the China internet ETF (KWEB). As China’s big tech regulatory issues resurfaced and Alibaba and Baidu plunged sharply, it appears that the weighting of the Chinese internet sector was increased.

Among U.S. ETFs, sector-wise, funds flowed into consumer discretionary and tech sectors. This was due to U.S. retail sales in October exceeding market expectations and strong third-quarter earnings from Walmart and Nvidia. Also, it is estimated that about 142.7 billion KRW flowed out from the domestic stock market through U.S.-listed ETFs last week. There are a total of 311 stocks included in U.S. ETFs that contain domestic stocks.

In the UK ETF market, funds flowed mainly into emerging markets and China ETFs. Among bond ETFs, inflation-linked bond ETFs mainly attracted funds. It is also estimated that about 32.4 billion KRW flowed out of the domestic stock market through UK-listed ETFs. In the UK ETF market, there was significant outflow from IKOR, which tracks the Morgan Stanley Capital International (MSCI) Korea index. There are 93 stocks included in UK-listed ETFs that contain domestic stocks.

(Provided by Kiwoom Securities)

◆ Kim Yumi, Researcher at Kiwoom Securities = The euro continued to weaken due to concerns about the negative impact of the resurgence of COVID-19, while the U.S. dollar maintained its strength. Due to the resurgence of COVID-19 in Europe, Austria declared a nationwide lockdown, and Germany is also considering possible controls.

Furthermore, the news of Chairman Powell’s reappointment has again stirred concerns about the Fed’s monetary tightening, influencing the dollar’s strength. After Powell’s reappointment was confirmed, Treasury yields rose and the dollar’s gains expanded. In other words, the news of Powell’s reappointment has become a factor that further strengthens expectations for U.S. interest rate hikes next year and concerns about an accelerated pace of asset purchase tapering within the Fed.

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