[Good Morning Market] US PPI Slowdown Raises Fed Pause Hopes... "Domestic Market Uptrend"

[Image source=AP Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] On the 15th (local time), the U.S. stock market closed higher amid expectations of easing inflation. The Dow Jones Industrial Average rose 56.22 points (0.17%) from the previous session to close at 33,592.92, the large-cap S&P 500 index ended at 3,991.73, up 34.48 points (0.87%), and the tech-heavy Nasdaq index closed at 11,358.41, gaining 162.19 points (1.45%).

The U.S. Producer Price Index (PPI) for October increased by 8.0% year-on-year, marking the fourth consecutive month of slowdown. It rose only 0.2% from the previous month, which was below the market forecast of 0.4%. Since both the PPI, typically seen as a leading indicator of inflation, and the earlier Consumer Price Index (CPI) showed signs of slowing, expectations are rising for the Federal Reserve (Fed) to slow its pace. It is anticipated that at the December Federal Open Market Committee (FOMC) meeting, the Fed may raise the benchmark interest rate by 0.5 percentage points instead of 0.75 percentage points, signaling a pace adjustment.

On the 16th, the domestic stock market is expected to show an upward trend, supported by the U.S. market's positive close. However, the news of a missile, presumed to be launched by Russia, falling in Poland has caused the U.S. dollar to strengthen, which poses a burden.

◆ Seo Sang-young, Head of Media Content at Mirae Asset Securities = The U.S. PPI for October rose only 0.2% month-on-month, falling short of expectations, and increased 8.0% year-on-year. The figure excluding food and energy remained at the same level as the previous month, and the figure excluding energy and trade services also stayed at 0.2% month-on-month. This could further fuel expectations of easing inflation, following the recent CPI slowdown.

However, after a missile presumed to be Russian fell in Poland, a NATO member country, causing casualties, the U.S. dollar strengthened. The incident is unlikely to escalate significantly as it is interpreted as an attack on a NATO member, which would be unfavorable for both Russia and NATO. Furthermore, the possibility that the missile debris was shot down by Ukrainian forces rather than a direct Russian attack on Poland has emerged, leading to a market pullback. The Russian Ministry of Defense also stated that it never targeted missiles at Poland. As the likelihood of the issue escalating diminished, the dollar weakened again. Nevertheless, increased volatility seems inevitable.

The rise in the U.S. stock market due to easing inflationary pressures is expected to positively influence the domestic market. Particularly, the low likelihood of escalation regarding the missile incident in Poland and the market pullback are positive factors. Additionally, the Philadelphia Semiconductor Index's 3.03% rise indicates sustained positive investor sentiment. However, the strengthening of the dollar due to the missile issue remains a concern. The domestic market is expected to start up about 0.3% higher, with the KOSPI index challenging the 2,500 level and undergoing a process of absorbing selling pressure.

◆ Han Ji-young, Researcher at Kiwoom Securities = Following the decline in the U.S. October CPI, the PPI also slowed more than expected, lending credibility to expectations of falling inflation and the Fed's pace adjustment.

According to Bank of America (BofA)'s global fund manager survey, 85% of respondents forecast a decline in inflation, marking a record high, and the draft joint declaration of the Group of Twenty (G20) reportedly includes a slowdown in monetary tightening, reinforcing this view. However, the issue of slowing the pace of tightening has largely been priced into the recent short-term rally, and the focus is shifting to the final interest rate level and the duration of high rates.

The domestic market closed higher in the previous session despite foreign investors’ profit-taking, supported by strong domestic semiconductor stocks following Warren Buffett’s Berkshire Hathaway’s purchase of TSMC shares, and buying interest centered on oversold growth stocks such as biotech and gaming.

Today, the market is expected to continue its upward trend due to positive U.S. factors such as the sharp rise in the Philadelphia Semiconductor Index and the decline in the U.S. October PPI. However, short-term profit-taking pressure persists, creating technical resistance that may limit the index’s upside.

Meanwhile, attention should be paid to the news of a missile presumed to be Russian falling in Poland. Russia denies the claim, and Poland and the U.S. are taking cautious stances. There is also speculation that the object was debris rather than a missile, so excessive anxiety is deemed unnecessary. However, the war-related issue could trigger sharp rises in certain small- and mid-cap thematic stocks, so caution is advised against the spread of related fake news.

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