[Good Morning Stock Market] "KOSPI Expected to Start Slightly Lower"

[Asia Economy Reporter Hwang Yoon-joo] On the 15th, the domestic stock market is expected to start slightly lower. This is because although Federal Reserve (Fed) Vice Chair Lael Brainard's remarks and the US-China summit are positive for the Korean stock market, there is a possibility of some sell-off. In particular, the KOSPI is expected to move in tandem with the direction of the US dollar.

On the previous day (local time), the US stock market closed lower. At the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 211.16 points (0.63%) to close at 33,536.70. The S&P 500, which is centered on large-cap stocks, closed down 35.68 points (0.89%) at 3,957.25, and the Nasdaq, which is tech-heavy, ended the day down 127.11 points (1.12%) at 11,196.22.

Seo Sang-young, Head of Mirae Asset Securities: "KOSPI expected to start down about 0.3%"

Today, the KOSPI is expected to start down about 0.3% and then go through a process of digesting sell-off pressure. In particular, the domestic stock market is expected to fluctuate depending on the direction of the US dollar.

The intraday rebound supported by Fed Vice Chair Lael Brainard's dovish remarks is positive for the Korean stock market. Brainard's mention of slowing the pace of rate hikes has reduced the strength of the dollar, increasing the possibility of won appreciation.

Also, the fact that the US and China made positive statements, at least in principle, opposing a 'new cold war' during their face-to-face summit is favorable. This is because the two countries agreed to continue meetings based on communication.

However, the possibility of some sell-off following recent gains, as seen near the close of the US market the previous day, remains a burden. Last Friday, the domestic market turned lower as sell-off emerged when the dollar strengthened following the US midterm election results and remarks by Fed Governor Christopher Waller ("concerned about the market's excessive reaction to the decline in the Consumer Price Index").

The MSCI Korea Index ETF fell 1.91%, and the MSCI Emerging Markets Index ETF dropped 0.60%. The 1-month NDF USD/KRW rate was at 1,324.12 won, with the exchange rate expected to start down about 3 won. Eurex KOSPI 200 futures rose 0.48%.

Han Ji-young, Kiwoom Securities Researcher: "Stock price movement limited... profit-taking expected after short-term surge"

Yesterday, the domestic market showed gains until mid-session but closed lower due to a rebound in the won-dollar exchange rate and uncertainties from the FTX exchange bankruptcy. Today, the market is expected to show limited price movement, influenced by profit-taking following the short-term surge and upcoming intraday releases of China's real economy indicators such as retail sales and industrial production.

The impact of this summit on the overall market, including China-related stocks and defense stocks, is expected to be neutral. This is because President Biden and President Xi Jinping mainly confirmed their differences on issues such as Taiwan, North Korea's nuclear program, the Ukraine war, and technology disputes during the talks.

Meanwhile, since October, there has been a growing internal Fed atmosphere to tone down hawkish (monetary tightening) rhetoric, and last week's CPI event seems to have reinforced expectations for a slower pace.

For example, on the 14th, Fed Vice Chair Lael Brainard evaluated the October CPI decline and expected core PCE to also slow, stating that "the pace of rate hikes will also slow." Treasury Secretary Yellen has also shifted her stance, now expressing concerns that the strong dollar is negatively impacting low-income countries. Previously, Yellen had said that a strong dollar was in the US's interest.

As confirmed by last week's weekly gains of over 7% in the Nasdaq and over 5% in the KOSPI, the stock market has largely priced in positive factors in a short period.

[Image source=Yonhap News]

Market participants are now expected to enter a phase where they react more sensitively to the final rate level rather than the pace of Fed tightening. In this context, it is important to note that both Fed Vice Chair Brainard and Governor Waller pointed out that "while slowing the pace is necessary, there is still a long way to go before rate hikes stop."

Also, although international oil prices plunged over 4% due to OPEC's outlook for weaker oil demand, the New York Fed's 1-year inflation expectations rose from 5.4% to 5.9%, partly due to expected increases in oil prices, showing mixed signals regarding the future inflation path.

Considering this, it is judged appropriate to maintain the existing strategy of monitoring data until the December FOMC, which can provide clues about the terminal rate level through the dot plot and other indicators.

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