[Good Morning Stock Market] Ukraine Crisis and Fed Rate Hike... Entering a Volatility Phase

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] The U.S. Consumer Price Index (CPI) for February surged 7.9% year-on-year, causing concerns over consumer slowdown and leading the U.S. stock market to turn downward. The decline widened following the announcement of additional economic sanctions against Russia, closing lower. In this situation, the domestic stock market is expected to enter a phase of increased volatility influenced by the developments in the Ukraine crisis and the Federal Reserve's (Fed) interest rate hike decisions.

◆ Seosangyoung, Researcher at Mirae Asset Securities: "Focus on Ukraine Issues and Fed's Moves"

In the U.S. stock market, sectors such as semiconductors and electric vehicles, which are expected to be affected by sanctions announced between Western countries and Russia, led the decline. Concerns that high inflation may persist long-term highlighted the possibility of aggressive Fed responses, which also contributed to the downturn. On the 11th (local time), the Dow Jones Industrial Average fell 0.69%, the Nasdaq Composite dropped 2.18%, and the S&P 500 declined 1.3%.

The ongoing instability in the Ukraine crisis led to sell-offs in the latter part of the trading session, causing the U.S. stock market to close with a widened decline, which is seen as a burden for the domestic market. In particular, the Philadelphia Semiconductor Index fell 2.08% due to supply concerns over neon, essential for semiconductor processing. Although the impact may not be immediate due to ample inventory, prolonged issues could have negative effects. Additionally, the electric vehicle sector plunged, with Tesla dropping 5.12%, and attention to the Fed's interest rate hike issue, along with short-term Treasury yields and a stronger dollar, are expected to dampen investor sentiment.

Furthermore, the rise in the 'LIBOR-OIS spread,' indicating the difference between credit loans and collateralized loan rates in the U.S. interbank market, and the 'TED spread,' representing the difference between the 3-month U.S. Treasury yield and LIBOR, due to the Ukraine crisis, also acted as burdens, suggesting continued volatility expansion. Moreover, heightened concerns over consumer slowdown in the U.S. are expected to affect the USD-KRW exchange rate negatively, creating adverse conditions for foreign capital inflows. The domestic stock market is analyzed to start with about a 0.5% decline and continue experiencing increased volatility due to foreign capital supply concerns.

◆ Han Ji-young, Researcher at Kiwoom Securities: "Entering a Phase of Increased Volatility Influenced by External Events"

The impact of the developments in the Ukraine crisis is identified as a key factor. However, considering that follow-up talks between Ukraine and Russia are scheduled and that Russian President Vladimir Putin and European Union (EU) leaders continue telephone consultations, the pressure for stock market corrections caused by the Ukraine crisis is expected to be limited.

This week, a 0.25 percentage point interest rate hike by the Federal Open Market Committee (FOMC) has become a foregone conclusion, and some uncertainty appears to have been resolved, but the market is still expected to be affected. Researcher Han stated, "With no positive factors emerging for the stock market, volatility is expected to increase during the week due to caution ahead of the March FOMC. However, since the 12-month forward price-to-book ratio (PBR) is below 1, the perspective that selling responses should be avoided remains valid."

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