[Good Morning Stock Market] US FOMC Caution... Focus on 'Rebound Buying' Following China's Economic Data Release

[Asia Economy Reporter Lee Seon-ae] On the 15th, the domestic stock market is expected to be burdened by the decline in the U.S. stock market. However, it is likely to be positively influenced if a rebound buying trend flows in following the release of China's real economy indicators.

◆ New York Stock Market Closes Lower Across the Board= On the 14th (local time), the New York stock market closed lower across the board due to the decline of major tech stocks and record-breaking economic indicators that fueled inflation concerns. On the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 106.77 points (0.30%) from the previous close to finish at 35,544.18. The Standard & Poor's (S&P) 500 index dropped 34.88 points (0.75%) to close at 4,634.09. The tech-heavy Nasdaq index plunged 175.64 points (1.14%) to end at 15,237.64.

On the same day, the U.S. Department of Labor announced that last month’s Producer Price Index (PPI) rose 9.6% year-on-year, marking the highest level since statistics began in 2010. It rose 0.8% from the previous month, which had already set a record high, breaking the record again. The Federal Reserve (Fed) is scheduled to hold a two-day Federal Open Market Committee (FOMC) meeting starting that day to announce updated monetary policies. Earlier, the U.S. Consumer Price Index (CPI) for last month also recorded a 6.8% increase, the highest in about 40 years, and with the PPI also hitting an all-time high, attention is focused on whether the Fed will accelerate its tightening policy.

Market experts expect the Fed to speed up tapering (asset purchase reduction), ending it by March next year, and to start raising interest rates from June.

◆ Seo Sang-young, Researcher at Mirae Asset Securities= The U.S. stock market fell due to concerns about aggressive Fed actions following the release of high inflation indicators, which is expected to weigh on the Korean stock market. In particular, the weakness in major tech stocks that have led the rise so far, as well as electric vehicle and metaverse-related stocks continuing their decline from the previous day, are factors dampening investor sentiment. Additionally, if the Fed makes a more aggressive announcement than expected, foreign investors are likely to withdraw, making supply-demand factors negative as well.

Meanwhile, attention should be paid to the release of China’s real economy indicators, including retail sales expected to slightly slow compared to the previous month and industrial production expected to show slight improvement. If the results are better than expected, a rebound buying trend is anticipated. Considering this, the Korean stock market is expected to start the day down about 0.3%, but rebound buying may be expected after the release of China’s economic indicators.

◆ Han Ji-young, Researcher at Kiwoom Securities= Although the acceleration of tapering has largely been priced in by the market since the November FOMC, concerns about the acceleration of interest rate hikes (early rate hikes in the first half of the year) remain ongoing. Various inflation indicators such as the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) have already exceeded the Fed’s average inflation target (2%), making interest rate hikes in 2022 inevitable. One point to consider is that the Fed tends to respond to policy changes in a lagging manner based on data. Attention should be paid to the possibility of peak expected inflation being reached, and the potential easing of logistics disruptions in early next year following the end of the year-end shopping season. In other words, the actual pace of the Fed’s rate hikes may not proceed as quickly as currently expected (3 to 4 times a year).

Of course, with the December FOMC results imminent, the domestic stock market today is also expected to enter a phase of increased volatility influenced by related caution and the results of China’s real economy indicators. Including the previous trading day, major tech growth stocks that have led the U.S. stock market for some time have been sluggish, causing concerns about price corrections in growth stocks in the domestic market as well. However, it is appropriate to view the recent decline in U.S. major tech growth stocks as a correction of the previously severe concentration. Large growth and IT stocks in Korea have not experienced such concentration, and rather still offer entry price merits, so there is no need for excessive anxiety about this.

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