[Good Morning Market] US Inflation Fear Resurfaces... Will It Darken the Domestic Stock Market?

[Asia Economy Reporter Ji Yeon-jin] The U.S. stock market fell on the 10th (local time) as last month's U.S. Consumer Price Index (CPI) exceeded expectations. The Federal Reserve's (Fed) prospects for rapid interest rate hikes further dampened investor sentiment. The Dow Jones Industrial Average dropped 1.47%, while the Nasdaq and Standard & Poor's (S&P) indices fell 2.10% and 1.81%, respectively. Concerns over U.S. tightening are expected to weigh on the Korean stock market. In particular, the sharp rise in U.S. Treasury yields, which led to declines mainly in tech stocks, could affect foreign investor flows. However, despite the U.S. stock market decline, the rise in European markets is

The U.S. January Consumer Price Index rose 0.6% month-over-month and 7.5% year-over-year, marking the largest increase since February 1982. Although the market stabilized intraday following President Biden's remarks on inflation stabilization, rising U.S. Treasury yields expanded the contraction in investor sentiment. Due to the sharp rise in yields, MS (-2.89%), Intuit (-3.74%), and Autodesk (-5.10%) declined, and financial stocks also fell. Micron (3.28%) rose on news of production disruptions caused by contamination at Western Digital and Kioxia's semiconductor plants in Japan.

◆ Sangyoung Seo, Researcher at Mirae Asset Securities = The U.S. stock market's decline amid concerns over the Fed's aggressive monetary policy due to the high Consumer Price Index is a burden on the Korean stock market. Although President Biden mentioned price stability, alleviating some concerns, the weakness in tech stocks caused by the surge in Treasury yields increases the possibility of overall investor sentiment deterioration. The probability of a 50 basis point rate hike in March has risen to 93%, partly due to Governor Brainard's rate hike remarks, which is also a concern. Particularly, the inversion of the 7-year and 10-year yields and the sharp narrowing of the long- and short-term yield spread could affect foreign investor flows. Considering this, the Korean stock market is expected to start with about a 1% decline, with foreign investor flows determining the index's direction.

◆ Jeonghoon Seo, Researcher at Samsung Securities = The U.S. 2-year Treasury yield rose about 25 basis points in one day, surpassing the 1.6% level. The 10-year yield also exceeded 2.0% for the first time since 2019. The dollar index rose about 0.1%, and West Texas Intermediate (WTI) crude oil prices showed a firm upward trend. Although concerns about inflation and tightening remain, the domestic stock market is judged to have sufficiently secured resilience against these factors. Considering that European markets rose despite the U.S. market decline, the domestic market can also be expected to show differentiation.

◆ Namjoong Moon, Researcher at Daishin Securities = The prolonged end of COVID-19 has weakened the monetary and fiscal capacity of major countries. As the Fed's exit strategy intensifies in the second quarter, liquidity reduction negatively impacts risk asset preference sentiment. Compared to 2020-2021, the pace of economic normalization and profit improvement is slowing. This year is a year with increased investment difficulty, and countries with relatively strong fiscal capacity are preferred to maintain the continuity of the with-COVID policy and economic recovery. The top priority investment country is the U.S., whose status is solid compared to others, considering an environment where growth rates exceed interest rates. As market uncertainty may increase, safe and effective strategies are needed, such as high-dividend sectors with low volatility and those that can guarantee earnings stability (energy, consumer discretionary, industrials). Growth stocks (IT, healthcare, ESG, electric vehicles & secondary batteries, aerospace, metaverse) should be increased in weight from a mid-term perspective when prices adjust in the first half of the year.

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