[Good Morning Stock Market] US Stocks 'Waver' Despite Eased Interest Rates... Korean Stocks' Rebound Also 'Questionable'

Rising Oil and Grain Prices Keep Inflation Concerns Alive
Investor Sentiment Weakens Amid Global Central Banks' Tightening Policies
"Expecting Economic Stimulus and Bottom-Fishing in China"

On the 18th (local time), a trader is handling tasks on the trading floor of the New York Stock Exchange (NYSE) in the United States.
[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] The U.S. stock market fell again despite the easing of Treasury yields, due to concerns over geopolitical instability and the aggressive tightening stance of the Federal Reserve (Fed). Although major domestic issues such as the listing of LG Energy Solution have been resolved, concerns about the external environment remain high, limiting the possibility of a rebound.

On the 19th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 35,028.65, down 0.96% from the previous day. The S&P 500 index fell 0.97% to 4,532.76, and the tech-heavy Nasdaq index plunged 1.15% to 14,340.26. Compared to the Nasdaq’s peak recorded on November 22 last year, it has dropped more than 10% in about two months.

◆Sangyoung Seo, Researcher at Mirae Asset Securities= International oil prices have recently strengthened amid heightened geopolitical issues in the United Arab Emirates (UAE), and the suspension of the oil pipeline from Iraq to Turkey has sustained the upward trend due to tight supply forecasts. The International Energy Agency (IEA) also raised its demand growth forecast by 200,000 barrels per day this year, expanding the price increase.

Additionally, geopolitical tensions with Russia have highlighted the possibility of reduced harvests in Ukraine, a major grain-producing region, causing wheat prices to surge. Corn and soybean prices also strengthened, broadening the rise in grain prices. Rising inflation concerns pushed the U.S. 10-year Treasury yield above 1.9% at one point.

However, a recent pullback from the rise led to a successful reversal in U.S. Treasury yields. The 20-year bond auction saw a bid-to-cover ratio of 2.48 times, exceeding the 12-month average of 2.36 times, and indirect bids reached 66.2%, surpassing the 12-month average of 60.8%, indicating strong bond demand, which contributed to the yield decline.

As yields stabilized, the stock market also showed signs of stabilization. This was in anticipation of the upcoming major tech earnings reports next week and the Federal Open Market Committee (FOMC) meeting, with investors seeking stability. However, ahead of President Joe Biden’s press conference, uncertainty remains due to geopolitical risks and concerns over the Fed’s aggressive stance, limiting confidence in a market rise. A stock-specific market is expected for the time being.

The domestic stock market is expected to follow a similar trend. Given the lack of confidence in the market due to high inflation and concerns over the pace of Fed rate hikes, the possibility of a clear rebound is limited. The People’s Bank of China, which recently lowered the Medium-term Lending Facility (MLF) rate, is likely to cut the Loan Prime Rate (LPR) today, which could positively impact investor sentiment by signaling China’s willingness to stimulate the economy, though the effect is expected to be limited.

◆Jiyoung Han, Researcher at Kiwoom Securities= The UK’s December consumer price index hit its highest level in about 30 years, spreading expectations of faster-than-anticipated rate hikes in the European region. The acceleration of global central bank tightening to combat high inflation has become the center of market instability.

Currently, market participants are reflecting potential changes in tightening policies from central banks. The U.S. Nasdaq index, a bellwether for global stock markets, has entered a technical correction phase, falling more than 10% from its peak, which weakens investor sentiment. This tightening-induced volatility is expected to be clarified after the January FOMC meeting on the 25th-26th (local time). With escalating geopolitical tensions between Russia and Ukraine, risk management should remain a priority for the time being.

However, despite a solid earnings season, the sell-off focused on U.S. growth and tech stocks suggests the market is leaning toward excessive pessimism. It seems appropriate to respond with a wait-and-see approach rather than aggressive selling or buying.

The domestic market is expected to open lower and be influenced by whether the People’s Bank of China cuts the LPR and changes in U.S. interest rates during the day. However, considering the recent larger declines compared to other markets, technical buying and bottom-fishing during the session are likely to limit the downside. With the subscription for LG Energy Solution’s IPO completed, the previously distorted supply-demand volatility may stabilize in the short term.

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