Fed's Hawkish Remarks Strengthen, Downward Pressure Grows Amid Concerns Over China's Economic Slowdown

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] On the 7th, the Korean stock market opened lower with major indices declining. During the session, the KOSPI index briefly fell below the 2700 level but later recovered above 2700.

The previous day, the U.S. stock market declined, especially in Nasdaq tech stocks, due to a sharp rise in the U.S. 10-year Treasury yield following hawkish remarks from the Federal Reserve (Fed), which was reflected in the domestic market.

Additionally, concerns over supply chains grew as the Shanghai lockdown was extended due to the COVID-19 situation in China, leading to significant foreign selling.

In the Korean stock market that day, the insurance sector rose amid expectations of interest rate hikes, and airline stocks continued their strength. Lotte Insurance closed at 2,025 won, up 6.58% the previous day, and during the session rose as much as 5.68% from the previous trading day to 2,140 won before giving up some gains. Hyundai Marine & Fire Insurance also rose 3.65% intraday to 34,150 won and was trading at 33,150 won at present. Airline stocks showed strength due to growing expectations of increased international flights from May, with forecasts to recover to 50% of 2019 levels by the end of this year.

Asian markets opened lower on the first trading day after the Qingming Festival holiday, with China’s major indices declining. The extension of the Shanghai lockdown during the holiday and the Fed’s aggressive tightening stance dampened investor sentiment, leading to the decline.

The U.S. market saw a rapid shift in sentiment within a day, increasing the possibility of further volatility. However, the impact on long-term bonds is expected to be limited. After hawkish remarks by Lael Brainard, the Fed Vice Chair nominee who was previously considered dovish, the U.S. 10-year Treasury yield surged, resolving the inversion between short- and long-term yields.

Park Kwang-nam, a researcher at Mirae Asset Securities, interpreted, "Vice Chair Brainard’s statement that the Fed could consider not only stopping reinvestments but also selling assets to reduce the balance sheet acted as a trigger for the market decline."

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