[Good Morning Market] US CPI Hits Highest in 40 Years... Korean Stock Market Faces Both Upward and Downward Pressure

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jaehee] On the 12th (local time), the U.S. stock market showed a strong gain of over 1% in the morning following the release of the U.S. March Consumer Price Index (CPI), which was evaluated as not as high as feared despite heightened caution. However, all three major indices turned downward and closed lower due to hawkish remarks by Fed Governor Brainard during the session and the reemergence of geopolitical risks related to Ukraine. Accordingly, the Korean stock market is expected to start with a slight rise amid coexistence of both upward and downward pressures.

Han Ji-young, Kiwoom Securities Analyst: "Korean Stock Market Faces Both Upward and Downward Factors... Will Show Limited Price Movement"

The domestic stock market is expected to show limited price movement as both upward and downward factors coexist, including expectations of inflation peaking out, a forecasted decline in the won-dollar exchange rate, uncertainties over the Ukraine situation, and concerns about inflation becoming entrenched. However, following companies’ strong first-quarter earnings announcements, the market’s incentive for bargain buying is expected to increase, thereby securing downside rigidity for the index.

The U.S. March CPI rose to 8.5%, surpassing both the previous month’s 7.9% and the forecasted 8.4%, marking the highest level since 1981. This confirmed that the surge in energy prices due to the Ukraine crisis has increased inflationary pressures. However, the previously inflation-driving surge in used car prices has somewhat eased, and core consumer prices were not as high as expected, lending support to the view that inflation peaking out as early as March or during the second quarter remains valid.

While expectations for inflation peaking out are growing, concerns about the Fed accelerating its tightening policy have not easily dissipated. The federal funds futures market reflects probabilities of 86% and 69% for a 50 basis point rate hike at the May and June FOMC meetings, respectively. Additionally, West Texas Intermediate (WTI) crude oil surged again by 7.1%, surpassing $100, and the stalemate in Ukraine-Russia negotiations is also cited as a factor delaying the inflation peak.

Seo Sang-young, Mirae Asset Securities Analyst: "Long-term Inflation Risk is a Burden, but Expanding Expectations for Inflation Peaking Out is Positive"

The Korean stock market is expected to start with a rise of around 0.5%. The decline in the U.S. stock market due to concerns over prolonged inflation is likely to weigh on the Korean market as well. Furthermore, U.S. Secretary of State Blinken’s remarks regarding Russian chemical weapons have increased uncertainty over the Ukraine issue, which is considered a factor dampening investor sentiment. However, as seen from the U.S. CPI, the expanding expectations for inflation peaking out are positive. In addition, the partial lifting of the Shanghai lockdown and the Chinese government’s economic stimulus policy expectations are also viewed favorably.

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