[Good Morning Stock Market] "Powell's 'Hawkish' Speech Expected to Start with Decline"... Also Forecasted Narrowing of Losses

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] The hawkish tone from Federal Reserve (Fed) Chair Jerome Powell's speech at the Jackson Hole meeting continues to reverberate. Chair Powell stated, "We must maintain a restrictive stance for the time being," adding, "Unfortunately, reducing inflation comes with a cost." He also warned, "Failing to stabilize prices will inevitably lead to greater pain."

On the 26th (local time), the U.S. stock market saw a heavy sell-off centered on tech stocks, resulting in a sharp decline. The Nasdaq, dominated by tech stocks, closed down 497.55 points (3.94%) at 12,141.71. The Dow Jones Industrial Average fell 1,008.38 points (3.03%) to 32,283.40, and the large-cap S&P 500 index dropped 141.46 points (3.37%) to 4,057.66.

The U.S. market's more than 3% decline following Powell's remarks is expected to negatively impact the domestic market on the 29th, leading to a lower start. However, since Powell's speech largely echoed points previously made by other Fed officials, some expect a rebound buying interest to emerge, which could limit the extent of the decline.

◆ Seo Sang-young, Head of Media Content at Mirae Asset Securities = At the Jackson Hole meeting, Chair Powell emphasized the need to continue raising the benchmark interest rate and maintain it for a considerable period next year. He spoke strongly, stating that price stability is the foundation of the economy, and without stability, no effect can be achieved, potentially causing instability in the labor market. He ruled out the possibility of early easing policies, warning that such moves could cause problems. He also noted that current inflation results from strong demand and limited supply, and considering that Fed policies affect aggregate demand, they will do what is necessary to control demand.

Powell's remarks did not introduce particularly new content but rather clarified previous statements and reaffirmed that early easing is off the table. Many Fed officials have expressed surprise at the market's expectation of rate cuts next year and have stated that supply issues were a major cause of inflation.

However, positive economic indicators under these circumstances are likely to raise expectations for the September Federal Open Market Committee (FOMC) meeting. The U.S. July Personal Consumption Expenditures (PCE) price index fell 0.1% month-over-month and was revised down from 6.8% to 6.3% year-over-year. Additionally, the continued decline in major items that had driven inflation, such as gasoline prices, suggests that the inflation rate for August, to be announced in September, will maintain a downward trend.

The U.S. market's sharp 3% drop following Powell's remarks is expected to dampen investor sentiment in the domestic market. The Philadelphia Semiconductor Index's steep 5.81% plunge raises the possibility of sell-offs in related stocks. However, since Powell's speech is not significantly different from previous Fed officials' comments, and the semiconductor sector's decline partly reflects the guidance downgrades from Dell and Marvell Technology, the risk of expanded concerns is limited. Considering economic indicators that raise expectations for a downward revision of U.S. inflation in August, the domestic market is expected to start lower but narrow losses due to rebound buying.

◆ Han Ji-young, Researcher at Kiwoom Securities = Powell's speech was concise. It conveyed a strong determination to tackle inflation, and nothing more, which caused a strong shock to the stock market. Powell mentioned, "The July slowdown in U.S. consumer prices is welcome but not sufficient to change the Fed's policy outlook," which likely contributed to uncertainty and anxiety in the market.

Although the July U.S. Consumer Price Index (CPI) slowdown makes a peak-out likely, it is premature for the market to declare victory in the fight against inflation. The Fed is expected to raise the benchmark interest rate by 75 basis points (1bp = 0.01%) at the September FOMC and maintain a rate hike stance going forward.

Furthermore, quantitative tightening will expand starting in September, so liquidity reduction in the market will continue, and the resulting front-end demand slowdown will make it difficult for Korea's export momentum to escape its vulnerable phase. Uncertainty from macro events such as CPI and FOMC remains unchanged, making it difficult for the stock market to break through significant resistance levels.

However, considering that the recent rebound has been relatively sluggish compared to the U.S., the impact of the decline is expected to be limited. The recent sharp rise in the won-dollar exchange rate is more due to external factors than intrinsic won factors, and the KOSPI level converted to dollars is estimated to be around 2,200, so the ongoing foreign net buying trend since last month is unlikely to be disrupted.

Ultimately, the domestic stock market is expected to see coexistence of upward and downward factors, such as 'likely inflation peak-out and valuation attractiveness' and 'limited price level decline and continued central bank tightening.' In this process, the KOSPI is expected to maintain a box range trend through the end of the year.

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