[Good Morning Stock Market] "Fed Likely to Raise by 75bp... KOSPI Expected to Start Down Around 1%"

UK Raises Base Interest Rate by 0.25%p to Highest in 13 Years
Andrew Bailey BOE Governor Warns of Economic Slowdown
US Nasdaq Plummets 4.99%
Market Reacts with 'Giant Step' Despite Fed Chair Powell's Views

Jerome Powell, Chairman of the U.S. Federal Reserve (Washington AP=Yonhap News)

[Asia Economy Reporter Hwang Yoon-joo] On the 6th, the domestic stock market is expected to start lower and show volatility depending on foreign selling. This is due to the Bank of England's (BOE) warning of an economic slowdown and the plunge in the U.S. stock market.

On the 5th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 32,997.97, down 1,063.09 points (3.12%) from the previous session. The S&P 500, focused on large-cap stocks, closed at 4,146.87, down 153.30 points (3.56%), and the tech-heavy Nasdaq closed at 12,317.69, down 647.16 points (4.99%).

◆ UK Central Bank Warns of Economic Slowdown... Market Focuses on 'Giant Step (75bp)' Possibility= The U.S. stock market's decline widened due to issues such as the delisting of Chinese companies, a sharp drop in e-commerce stocks like Amazon (-7.56%), and concerns expressed by the BOE Governor about a rapid economic slowdown.

Volatility increased as the Federal Reserve and the market had differing views on tightening policies. The U.S. Federal Open Market Committee (FOMC) stated it is "not considering" a 'Giant Step (75bp)' hike, but the market believes that the current level of monetary policy is insufficient to curb inflation.

It is important to note that the FOMC's statement suggested that inflationary pressures from the Ukraine crisis will not be short-lived and expressed concerns about worsening supply shortages due to China's lockdown measures. This implies that inflation caused by the Ukraine crisis and supply shortages are beyond the Fed's control. Reflecting this, the Chicago Mercantile Exchange (CME) FedWatch Tool shows the probability of a 'Giant Step' in June has risen to 87%.

[Image source=Yonhap News]

Concerns about inflation and economic slowdown from the BOE also dampened sentiment. In the early hours of the 6th, the BOE Monetary Policy Committee (MPC) raised the base interest rate by 0.25 percentage points from 0.75% to 1.0%. This is the largest increase since February 2009 (1.0%).

The BOE has raised the base rate four consecutive times since December last year. This is the first time since the BOE's independence in 1997 that rates have been raised four times in a row. This decision reflects the BOE's concerns about inflation.

Concerns about economic slowdown are also growing. The BOE lowered its growth forecast for next year from 1.25% to -0.25%, signaling negative growth. The BOE stated, "Since Russia's invasion of Ukraine, global inflationary pressures have intensified sharply," adding, "This worsens the economic growth outlook for both the world and the UK."

◆ Korean Stock Market Expected to Start Down About 1%... Downward Pressure Limited= The Korean stock market is expected to start lower and show weakness.

Seo Sang-young, Head of the Media Content Division, said, "The expansion of Chinese companies facing delisting on the U.S. stock exchange, the BOE Governor's remarks on economic slowdown concerns, and the possibility of expanded lockdowns in Beijing are negative for foreign demand," adding, "The Korean stock market is expected to start down about 1%, then fluctuate depending on the scale of foreign selling."

Kiwoom Securities pointed out that to calm anxiety, the peak of inflation must be confirmed. The U.S. consumer price index for April, scheduled to be announced on the 11th, is expected to show an 8.1% increase year-on-year (previous month 8.5%).

Han Ji-young, a researcher at Kiwoom Securities, said, "While the peak of inflation (peak-out) is expected, current market sentiment and buying momentum are both weak," adding, "Around the consumer price announcement on the 11th, major global stock markets centered on the U.S. are expected to continue a phase of increased volatility."

Han also judged, "Although the domestic stock market will inevitably decline today due to the shock of the U.S. stock market plunge, the downward pressure during the trading session will be limited as it did not benefit from the sharp rebound rally in the U.S. stock market during the domestic market holiday."

He further analyzed, "Unlike the U.S., Korea's leading companies in semiconductors and automobiles have reported strong earnings, so growth concerns are relatively low, which is expected to support the index floor against the shock of the U.S. stock market plunge."

Seo Jung-hoon, a researcher at Samsung Securities, also pointed out, "According to Refinitiv, the 1-year forward PER of the Korean stock market (MSCI KOREA 12M FWD PER) is around 9.1 times," noting, "This is close to the 8.8 times during the COVID-19 period."

Seo advised, "It is worth observing a bit longer rather than rushing into panic selling," and added, "Additionally, from a mid- to long-term perspective, it is fully possible to consider gradually buying large-cap stocks that have been excessively sold off."

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