"US Inflation Peaks in June... Time Needed for Stocks and Bonds to Rebound"

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] An analysis suggests that it will take time for stocks and bonds to rebound until the slowdown in the US Consumer Price Index (CPI) for July is confirmed.

On the 17th, Korea Investment & Securities stated, "As the downward trend in commodity prices continues, we expect a volatile market for stocks and bonds until the slowdown in the US CPI for July is confirmed."

Korea Investment & Securities diagnosed, "Due to the Federal Reserve's tightening amid high inflation burdens, demand is likely to shrink. Since the growth rate will be calculated based on a higher base from the fourth quarter, the US consumer price inflation rate is expected to gradually decline toward the end of the year after peaking in June."

However, it is evaluated that passing the peak of headline inflation alone is not very meaningful. Even if the contribution of some highly volatile items decreases, a comprehensive inflationary trend is already underway, so high inflation levels will still need to be fought in the second half of the year.

Ultimately, it emphasized that along with whether inflation has passed its peak, the 'speed' at which the inflation rate slows is also important. First, the possibility of a jumbo step (100bp hike) at the July FOMC is increasing. This is because the June CPI recorded +9.1% year-on-year, surpassing expectations.

Korea Investment & Securities forecasted, "Concerns about accelerated tightening are expected to expand for the time being," and "Despite recession worries, the Federal Reserve (Fed) is expected to strongly maintain its rate hike stance."

It added, "Until the pace of tightening is adjusted, it will be difficult for stocks to show a full-fledged rebound as valuations expand again."

It also added, "We maintain a neutral view on the proportion of risky assets in the portfolio."

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