[Good Morning Market] FOMC, US CPI and Deepening 'Wait-and-See' Sentiment

[Asia Economy Reporter Junho Hwang] With this week's inflation data release and South Korea's Monetary Policy Committee meeting ahead, the stock market on the 11th is expected to show a cautious stance.

US CPI and Other Economic Indicators 'Inflation Expected to Persist'

The consumer price inflation rate in March soared to the 4% range for the first time in about 10 years. On the 5th, a citizen shopping at a large supermarket in downtown Seoul is seen doing their grocery shopping. Photo by Mun Ho-nam munonam@

First, this week on the 11th, China's Producer Price Index (PPI) will be announced. The market expectation is 8.7%, slightly lower than the previous 8.8%.

However, the US March Consumer Price Index (CPI), released the following day, is widely expected to show a higher inflation rate.

Lee Kyung-min, a researcher at Daishin Securities, said, "It is expected to record a higher level than in February," adding, "While retail sales amounts will increase due to inflationary effects, consumer sentiment and production indicators are likely to remain weak."

Ahn Young-jin, a researcher at SK Securities, also said, "Among the economic indicators to be released this week, the most noteworthy is the US CPI," adding, "Market expectations for CPI and core CPI are 8.3% and 6.6%, respectively, which raises concerns about worsening inflation compared to the previous 7.9% and 6.4%."

Monetary Policy Committee Without a Governor: Will the Base Rate Rise?

Lee Ju-yeol, Governor of the Bank of Korea, is seen with a bright expression looking at the staff as he boards a vehicle after the farewell ceremony at the Bank of Korea in Jung-gu, Seoul on the 31st. Photo by Moon Ho-nam munonam@

On the 14th, the Monetary Policy Committee (MPC) will hold its first meeting without a governor since former Bank of Korea Governor Lee Ju-yeol’s term ended last month. However, the market believes that despite the absence of a governor, the possibility of a base rate hike exists due to the consumer inflation rate reaching the 4% range and the normalization of monetary policies in major countries such as the US. On the other hand, some opinions suggest that a rate hike might be premature since the inflation is driven more by supply-side factors such as the Russia-Ukraine war and global supply chain adjustments rather than demand increases.

Researcher Ahn said, "Considering the recent hawkish stance of the US Federal Reserve and the global hyperinflation trend, the possibility of a rate hike cannot be completely ruled out; however, given the vacancy in the governor position and the political transition period, the likelihood of maintaining the current rate is higher," adding, "With Lee Chang-yong’s nomination hearing scheduled for the 19th, it is expected that active monetary policy will be pursued after his appointment is completed."

Will Supply and Demand Instability Persist Despite Upward Revisions to Listed Companies' Q1 Earnings Forecasts?

Samsung Electronics achieved a record high performance with annual sales exceeding 279 trillion won. On the 7th, Samsung Electronics announced that its preliminary consolidated results for last year showed sales of 279.04 trillion won and an operating profit of 51.57 trillion won. The photo shows the Samsung Electronics Seocho building. Photo by Mun Ho-nam munonam@

In this environment, the domestic stock market will see the release of first-quarter earnings reports from listed companies this week. Although earnings forecasts are high, concerns about market liquidity remain.

Mirae Asset Securities recently revised upward the operating profit estimates for domestic listed companies in Q1 by 2.8% compared to one month ago and 3.5% compared to three months ago. In particular, the KOSDAQ 150 is expected to see operating profit estimates rise by nearly 20% compared to three months ago.

However, liquidity conditions are expected to remain unfavorable. Seo Sang-young, a researcher at Mirae Asset Securities, analyzed, "Although individuals showed net purchases close to 10 trillion won last week, net sales by institutions and foreigners continued," adding, "Despite Samsung Electronics’ strong earnings last week, foreigners sold a net 4.8 trillion won."

Kim Sung-no, a researcher at BNK Securities, also diagnosed, "With the prolonged stock market correction phase and continued selling by foreigners and institutions, real customer deposits have decreased, indicating stagnation in stock market liquidity." However, he added, "Considering that cash dividend inflows are expected this month, a sharp decline in liquidity is unlikely."

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