November FOMC Also Giant Step, KOSPI Focused on Pivot... "No Fireworks for Short-Term Rally"

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[Asia Economy Reporter Lee Seon-ae] Ahead of the November Federal Open Market Committee (FOMC) meeting of the U.S. Federal Reserve (Fed), volatility in the domestic stock market is expected to increase. The press conference on the interest rate hike results will be held at 3 a.m. on the 3rd, Korea Standard Time, and if Fed Chair Jerome Powell mentions a slowdown in the pace of rate hikes at this event, the domestic stock market is anticipated to attempt a technical rebound. However, securities firms advised that due to various downward pressure factors scattered across the market, it is appropriate to observe cautiously while managing risks rather than chasing buying.

Powell's Words 'Expecting Pace Adjustment'... No Chasing Short-Term Shooting

On the 31st, securities firms predicted that the direction of the domestic stock market would change depending on the November FOMC results. While the prevailing analysis is that the Fed will implement an unprecedented four consecutive 'Giant Steps' (0.75 percentage point rate hikes at once), the market is focusing on Chair Powell's press conference after the meeting ends. Due to expectations of a Fed pivot (policy direction shift) such as slowing the pace of rate hikes, the domestic stock market has shown an upward trend since last week.

Lee Kyung-min, head of the investment strategy team at Daishin Securities, explained, "In the current situation where a 0.75 percentage point rate hike in November is a foregone conclusion, Chair Powell's remarks are very important," adding, "If there is mention of slowing the pace, the market rebound will continue, and the possibility of a short-term overshoot is also high." SK Securities Research Fellow Ahn Young-jin said, "Recently, due to expectations of a Fed pivot, the stock market has shown a short-term rally," and added, "Whether the Fed will really slow the pace of rate hikes will be revealed through Powell's words at the press conference after the FOMC meeting." Park Sang-hyun, a researcher at Hi Investment & Securities, pointed out, "The main focus of the November FOMC meeting is not the Giant Step hike but whether the slowdown in the pace of rate hikes will become visible in December," noting, "Market expectations that the rate hike magnitude will slow at the December FOMC meeting are already growing."

However, excessive expectations should be avoided. Lee said, "In the short term, due to weak economic indicators and the visibility of slowing the pace of rate hikes, a technical rebound and dead cat bounce may continue in the KOSPI and global stock markets," adding, "However, the KOSPI is expected to fluctuate within a box range of 2200 to 2300 points with 2300 as resistance, and rapid rotation is expected, so chasing buying is burdensome."

NH Investment & Securities researcher Kim Young-hwan also said, "I believe the recent stock market is in a technical rebound phase due to expectations of a Fed pivot," adding, "The real economy is slowing and credit risks are increasing due to Fed rate hikes, and for this situation to settle, a bottom signal is needed, such as a clear economic bottom or bankruptcies of marginal companies followed by a recovery process." He continued, "Since expectations of a Fed policy shift have risen without a bottom signal, it is reasonable to view this as a technical rebound rather than a trend reversal," and said, "Generally, technical rebounds in the stock market are around 50% of the previous decline, and considering the price drop from the August peak, additional upside seems limited, so risk management is more important than chasing buying."

Funding Market Tightening Burden and Final Rate Uncertainty

Moreover, preparations must be made for remarks that could shatter expectations. Research Fellow Ahn emphasized, "If Chair Powell hints at slowing the pace of rate hikes, the market will gain momentum and rise further, but if such expectations are dismissed, the recently risen index will be reversed."

Furthermore, negative factors exerting downward pressure are scattered in the market. Recently, tightening in the financial sector's funding market is a burden that dampens investment sentiment in the stock market. According to the Financial Supervisory Service, corporate bond issuance last month was 16.4 trillion won, down 20% from the previous month. This is analyzed as companies hesitating to issue corporate bonds due to the sharp rise in high-grade corporate bond (AA rating, 3 years) yields from the mid-2% range at the beginning of the year to the 5% range.

Researcher Kim said, "The aftermath of the Gangwon Province unpaid incident has negatively affected not only the project financing (PF) asset-backed commercial paper (ABCP) refinancing issue but also the procurement of high-grade commercial paper (CP), raising concerns about short-term funding market tightening," adding, "In the stock market, increased corporate financial costs and ongoing funding tightening risks could act as burdens."

Even if there is mention of slowing the pace, rates remain an unstable factor. Kiwoom Securities researcher Ahn Ye-ha said, "Amid the recent sharp global policy rate hikes, concerns about liquidity tightening have frequently emerged, forming expectations of slowing the pace, and the possibility of slowing at the December FOMC is being highlighted," adding, "However, uncertainty about the final rate level remains high," and recommended a conservative investment strategy.

The widening trade deficit is also a burden. The scale of South Korea's October exports and imports and trade balance, to be announced on November 1, are expected to impact the market. In September, exports increased by 2.7% year-on-year to $57.448 billion, imports rose 18.6% to $61.226 billion, resulting in a trade deficit of $3.778 billion. This marks six consecutive months of deficits since April. Although the September deficit narrowed significantly compared to August's $9.49 billion, the trade deficit may widen again in October.

Kim Yumi, head of the investment strategy team at Kiwoom Securities, said, "October exports are expected to slightly decrease while imports increase, potentially widening the deficit," adding, "A widening trade deficit is a factor for won depreciation, so the recent high won-to-dollar exchange rate situation may intensify."

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