[Good Morning Stock Market] Overseas Markets Rally on 'Inflation Peak Theory'... KOSPI Also Expected to Rise

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] On the 13th, the domestic stock market is expected to start higher. This is likely influenced by the rally in major overseas stock markets during the Chuseok holiday period, as existing negative factors were perceived as having dissipated. The market is focusing on the spread of the inflation peak theory.

The New York stock market closed higher across the board ahead of the release of the U.S. August Consumer Price Index (CPI), fueled by expectations of easing inflation (peak inflation theory). On the 12th (Eastern Time), at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 32,381.34, up 229.63 points (0.71%) from the previous session. The Standard & Poor's (S&P) 500 index closed at 4,110.41, up 43.05 points (1.06%). The tech-heavy Nasdaq index ended at 12,266.41, rising 154.10 points (1.27%). The market was influenced by views that inflation had peaked ahead of the CPI release. This expectation that price increases will slow down after the peak led to stock price gains. If inflationary pressures ease, the Federal Reserve's (Fed) tightening pace could also slow down.

Seo Sang-young, Researcher at Mirae Asset Securities

Despite hawkish remarks from Fed officials during the Chuseok holiday, the U.S. stock market continued its upward trend as the dollar weakened, which is expected to have a positive impact on the Korean stock market. Moreover, most global stock markets showed gains of around 2-4%, which also contributed to an overall improvement in investor sentiment. Furthermore, ahead of the CPI release scheduled for the evening Korean time, expectations for inflation have been significantly revised downward, alongside global commodity price stabilization and easing supply chain concerns, expanding hopes for inflation stabilization. Of course, inflation remains at a high level, so a 75 basis point rate hike at the September Federal Open Market Committee (FOMC) meeting is highly likely. However, since this news has already been priced into the financial markets, the market is generally stable, which is also positive. On the downside, the ongoing escalation of conflicts between the U.S. and China over semiconductors remains a burden. Additionally, although expectations for a downward stabilization of the won-dollar exchange rate are high, the rate still remains at a high level, which is also a concern. Considering these factors, the Korean stock market is expected to start about 1.5% higher and maintain its strength supported by positive foreign demand due to the weak dollar.

Chae Hyun-gi, Researcher at Cape Investment & Securities

Given the favorable returns in global stock markets during the Chuseok holiday, the domestic stock market may show an upward trend this week. However, there are some volatility factors such as the FOMC, making it difficult to predict a clear trend direction. Depending on the results of indicators, both upward and downward movements in the stock market are possible. The CPI is a turning point. If the August CPI is reported below expectations, the strong dollar may ease, and the domestic stock market recovery could continue. If there are factors such as a significant slowdown in the growth rate that drive the stock market up, it will be necessary to approach from a buying perspective. However, the current condition for the stock market to rebound is whether the Fed's tightening stance in 2023 will ease due to a rapid easing of inflation. Among the CPI data, the core CPI is expected to be very meaningful in predicting the future direction of the stock market.

Han Ji-young, Researcher at Kiwoom Securities

Since the U.S. August consumer price data, scheduled to be released tonight Korean time, is also expected to be 8.1% (YoY) according to consensus, it is reasonable to view that U.S. inflation has shifted to a downward trend. The Fed has also declared that it will make rate decisions based on data before each FOMC meeting, so if the actual figures confirm a slowdown in inflation, after the 75 basis point hike at the September FOMC, expectations for a moderation in the tightening pace at subsequent meetings could form, allowing the stock market to rally further. However, it is necessary to recall the experience of Jackson Hole last August, where to prevent excessive optimism in the stock market after the CPI release, Fed Chair Jerome Powell made more hawkish remarks at the September FOMC press conference to curb expectations, which could trigger a market correction (currently, it is a blackout period, so Fed officials will not make statements until the September FOMC).

Therefore, until the September FOMC, it is appropriate to maintain the current stock allocation rather than actively increasing it, preparing proactively. In conclusion, external events during the holiday period created a generally favorable environment for risk asset preference without new negative factors. The domestic stock market today is also expected to reflect these factors simultaneously and show an upward trend. Of course, caution around the U.S. August CPI release after the domestic market closes may limit the overall index upside to within the 2% range, which could be disappointing for domestic investors. However, the slowdown in inflation indicators from the G2, easing of the dollar's strength, and positive news from Apple (strong demand for iPhone 14) are improving foreign demand conditions for inflation-affected stocks (growth stocks) and IT stocks, potentially creating relatively differentiated stock price momentum, so attention to these sectors is necessary.

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