[Good Morning Stock Market] Russia-Ukraine 3rd Negotiation Variables... Volatile Market Expected

3rd Russia-Ukraine Talks Held on 7th (Local Time)
US Stock Market Starts Lower Despite Strong US Employment Data
"Korean Stock Market Also Expected to Start Lower"
Russia-Ukraine Talks and Commodity Prices Are Variables

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] Despite the U.S. employment data showing the largest increase in seven months since July last year, the U.S. stock market opened lower and closed down due to weakened investor sentiment caused by the Russia-Ukraine war. The biggest variable in the stock market is the third round of negotiations between Russia and Ukraine scheduled for the 7th (local time). While the prevailing view is that the conflict between the two countries will not be prolonged, the negotiation process and rising commodity prices are expected to cause a volatile market.

◆ Park Gwang-nam, Head of Investment Strategy Team at Mirae Asset Securities: "U.S. stock market falls despite solid employment data... Korean market expected to open lower as well"

On the 4th (local time), U.S. nonfarm payrolls for February recorded 678,000, significantly exceeding market expectations of 400,000. However, the U.S. stock market opened lower despite the strong employment data. This is attributed to weakened investor sentiment following the sharp decline in European markets due to news of a fire at a Ukrainian nuclear power plant caused by Russian shelling. During the day, continuous rises in international oil and other commodity prices raised concerns about economic slowdown due to inflationary pressures, leading to a preference for safe assets, a drop in government bond yields, and a stronger dollar, resulting in a decline in the stock market at close.

The Dow Jones Industrial Average rose 0.53% compared to the previous session. However, the Nasdaq and the Standard & Poor's (S&P) 500 fell by 1.66% and 0.79%, respectively. The Russell 2000 also dropped 1.55%. The relatively limited decline in the Dow is interpreted as being due to gains in the energy sector driven by the surge in international oil prices.

Team leader Park expects the Korean stock market to also open lower, considering geopolitical concerns such as the Ukraine situation. He explained that the U.S. stock market's weakness due to ongoing geopolitical risks is a burden. However, the positive aspect is that the U.S. employment data showed strong performance, with overall improvements in detailed indicators. Additionally, the slowdown in the rise of hourly wages has helped reduce structural inflationary pressures, which is expected to be a positive factor for the stock market. Nevertheless, foreign investor flows are expected to be negative due to the sharp rise in the USD/KRW exchange rate.

◆ Han Ji-young, Researcher at Kiwoom Securities: "Korean market expected to trade in a box range... Ukraine, U.S. February consumer prices, and commodity prices are key variables"

The Korean stock market is expected to show a box range movement influenced by ▲ the conflict and negotiation process between Ukraine and Russia ▲ U.S. February consumer prices ▲ and whether the sharp rise in commodity prices such as oil and grains will subside.

As confirmed by the weakness in the U.S. stock market, inflation caused by the Ukraine crisis is further worsening, and concerns about economic contraction centered on Europe are increasingly weakening market sentiment. The U.S. yield curve spread (10-year minus 2-year Treasury yields), considered a leading indicator of recession, stood at the 30 basis points level as of early March, the lowest since March 2020.

Although the yield curve tends to flatten during actual rate hike periods, the rapid narrowing of the yield spread despite the Federal Reserve not having raised rates yet has emerged as a new concern. This suggests that the financial market is betting that the sharp rise in commodity and food inflation is darkening future economic growth prospects.

[Image source=Yonhap News]

Both Ukraine and Russia appear to have a strong will to prevent the worsening of the war. This is because both countries announced they will continue the third round of negotiations on the 7th (local time). Depending on the negotiation process this week, the price trends in the stock and commodity markets are expected to vary, and assuming no sudden deterioration in the situation as the base scenario, the price sensitivity of asset markets is expected to be lower than last week.

The Korean presidential election scheduled for the 9th is expected to have little impact on the index direction, considering past patterns before and after elections. Rather, the U.S. February consumer price data to be released on the 10th is expected to be an event that determines the market direction during the week. Additionally, the market's caution is expected to increase as it enters the blackout period during which Federal Reserve officials are prohibited from speaking ahead of the March Federal Open Market Committee (FOMC) meeting scheduled for the 15th-16th.

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