[Good Morning Stock Market] One-Two Punch, US "Needs to Tighten More".. UK "Stop Intervention"

US Tightening May Have Reached Its Limit
UK Pension Funds Need to Adjust Portfolios
US Stock Market Closes Mixed Amid Dollar Strength

(Source: Unsplash)

[Asia Economy Reporter Junho Hwang] On the 11th, while the KOSPI and KOSDAQ experienced significant declines, the U.S. stock market closed mixed last night. Although U.S. expected inflation hit its lowest level in a year, remarks from Federal Reserve Bank presidents emphasizing the need to continue tightening policies and news that the UK will halt bond market interventions as planned on the 14th had a major impact. Due to these effects, forecasts suggest that the Korean stock market will continue its downward trend rather than a rebound following the sharp drop the previous day.

On the 11th (local time), the U.S. stock market closed mixed. Major indices such as the Dow (0.12%), S&P 500 (-0.65%), and Nasdaq (-1.0%) each ended the day moving in different directions.

That day, the New York Fed announced that the one-year expected inflation rate was revised downward from 5.7% last month to 5.4%, marking the lowest level within one year since September of last year. Amid continued dollar strength, this was like a refreshing rain during a drought. In particular, the expected household spending dropped from 7.8% to 6.0%, marking the largest decline since 2013. This indicates that the Federal Reserve's interest rate hikes are playing a role in controlling inflation, which is analyzed to reduce the likelihood of further higher rate hikes, leading to a weaker dollar.

However, Andrew Bailey, Governor of the Bank of England (BOE), stated on the 11th (local time) at the International Institute of Finance (IIF) Membership Annual Meeting held in Washington DC that the recent two large-scale bond market interventions would be halted as planned at the end of this week (on the 14th), adding, "the essence of policy authorities' intervention for financial market stability is temporary." The BOE had expanded emergency bond purchases to prevent pension funds from facing liquidity crises due to falling bond prices, but this is a temporary policy, signaling that pension funds should adjust their portfolios by reducing leverage on their own.

Additionally, Loretta Mester, President of the Cleveland Fed, urged that the risk of tightening too little is greater than tightening too much. At an event hosted by the New York Economic Club, she warned, "Unacceptably high and persistent inflation remains a major risk facing the U.S. economy," and "Despite some easing in demand and improvements in supply-side conditions, there has been no progress on inflation so far."

As a result of these influences, the dollar index closed at 113.320, up 0.16% from the previous day. The yield on the 10-year U.S. Treasury note rose 4.92 basis points to 3.931.

Sangyoung Seo, a researcher at Mirae Asset Securities, forecasted, "Concerns related to recession remain unresolved and continue to affect the market, while increased market volatility originating from the UK could act as a factor dampening overall investor sentiment." He expected the KOSPI to start the day down around 0.3%.

Jiyoung Han, a researcher at Kiwoom Securities, explained, "Unless the inflation issue, which the market has repeatedly experienced throughout this year, is resolved, the volatile market conditions are expected to continue for a considerable period," adding, "Currently, the short-term market volatility is largely due to uncertainties in the bond market, including UK government bond yields."

Particularly, concerns are rising about the semiconductor sector. It is expected to be affected by news that KLA, a major U.S. semiconductor equipment company, will suspend deliveries to China-based customers, including SK Hynix, starting on the 12th (local time).

In the U.S. stock market that day, defensive sectors showed strength amid heightened recession concerns, while the Philadelphia Semiconductor Index fell 2.50% compared to the previous day due to the impact of the previous day's export restrictions on Chinese semiconductors.

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