[Good Morning Market] Ahead of US FOMC Results, European Recession Highlighted... "Expect a Cautious Market"

German Producer Prices Surge 45%
Concerns Over Ford's Performance Due to Supply Chain Issues

[Image source=Yonhap News]

[Asia Economy Reporter Ji Yeon-jin] The U.S. stock market closed lower on the 20th (local time) due to a sharp rise in Treasury yields ahead of the Federal Open Market Committee (FOMC) results. Amid concerns over a European economic recession, automaker Ford announced that unfinished vehicle inventory increased due to supply chain disruptions, leading to a decrease in vehicle deliveries, which dampened investment sentiment due to poor earnings. The Dow Jones Industrial Average fell 1.01%, while the Standard & Poor's (S&P) 500 index and the tech-heavy Nasdaq index dropped 1.13% and 0.95%, respectively.

Germany's producer price index for August surged 45.8% year-on-year, marking a historic high. Energy prices soared 139.0% year-on-year, fueling inflation. The U.S. 10-year Treasury yield briefly rose to 3.6%, and the 2-year yield approached 4.0%, reflecting heightened expectations for an upward revision in interest rate forecasts ahead of the FOMC.

◆ Seo Sang-young, Researcher at Mirae Asset Securities = The decline in the U.S. stock market ahead of the FOMC due to rising anxiety is a burden on the Korean stock market. In particular, the continuous impact of recession issues from German inflation data and Ford's announcement has dampened risk asset preference, which is expected to negatively affect the Korean stock market, highly dependent on exports. Additionally, the strengthening of the U.S. dollar against other currencies, driven by expectations of continued Federal Reserve rate hikes and increased safe-haven demand amid a global economic slowdown, is also expected to weigh on foreign investor flows.

However, it is noteworthy that Apple rose on expectations of improved earnings after announcing App Store price increases in Europe and Asia. This shows that companies with high customer loyalty, existing entry barriers, and strong earnings improvement prospects tend to attract bargain-buying sentiment despite recession concerns and Federal Reserve rate hikes. Considering this, the Korean stock market is expected to start with a decline of around 0.5%, but buying interest is likely to flow into stocks with expected earnings improvements, continuing a stock-specific market trend.

◆ Han Ji-young, Researcher at Kiwoom Securities = Market attention is focused on what decision the Federal Reserve will make at the September FOMC. A 75 basis point hike seems likely, and since market participants have largely priced this in, the key focus will be on whether there will be changes in the pace and intensity of future policies through Chairman Powell's press conference and the dot plot guidance. Any change in the consensus that the year-end Fed funds rate upper bound will be 4.5% (75bp hike in September + a combined 125bp hike in November and December) could also influence market direction.

Yesterday, the domestic stock market rebounded as the won-dollar exchange rate surge eased and bargain buying of growth stocks with excessive declines occurred. Today, due to cautious sentiment ahead of the September FOMC results and weakness in the U.S. stock market, volatility is expected to increase. The sharp drop of Ford (-12.3%) in the U.S. market yesterday, citing increased costs from supply shortages and inventory shortages, negatively affects investment sentiment for domestic stocks related to supply chain disruptions, including automakers. However, since this was partly reflected in the domestic market yesterday, additional downward pressure on stock prices is expected to be limited. During the session, besides FOMC caution, the market is expected to be influenced by Korea's export and trade balance results up to the 20th and the resulting won-dollar exchange rate changes. Considering this, the overall market trend is likely to be characterized by a cautious, range-bound trading environment amid sluggish trading, with differentiated stock price movements driven by individual stock-specific issues.

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