[Good Morning Stock Market] Persistent Tightening Fears... "Domestic Stock Market Expected to Start Lower"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] On the 17th (local time), the U.S. stock market recorded a decline due to hawkish remarks from Federal Reserve (Fed) officials. The Dow Jones Industrial Average fell 7.51 points (0.02%) to close at 33,546.32, the large-cap-focused S&P 500 index dropped 12.23 points (0.31%) to 3,946.56, and the tech-heavy Nasdaq index declined 38.70 points (0.35%) to 11,144.96.

Comments from James Bullard, President of the Federal Reserve Bank of St. Louis, about continuing interest rate hikes dampened investor sentiment. He stated, "The policy rate is not yet in a sufficiently restrictive range." Although he did not specify the size of future rate hikes, he projected a range of 5?7%. Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, also said that rate hikes must continue until it is certain that inflationary pressures have stopped rising.

On the previous day, Esther George, President of the Federal Reserve Bank of Kansas City, said, "It is difficult to continue lowering inflation without a substantial slowdown," warning that "the economy could contract."

Due to such remarks, concerns about economic slowdown were highlighted, leading to a decline in the U.S. stock market, which is expected to weigh on the domestic stock market on the 18th. The domestic market is anticipated to start lower on that day.

◆ Seo Sang-young, Head of Media Content at Mirae Asset Securities = Fed President Bullard warned about the market’s overreaction, saying, "October’s Consumer Price Index (CPI) is encouraging, but next month could easily move in the opposite direction."

Additionally, Loretta Mester, President of the Federal Reserve Bank of Cleveland, stated, "It is important to avoid the very uncomfortable situation of conflict between monetary policy and financial stability." Philip Jefferson, a Fed Board member, argued, "High inflation harms low-income households, and low inflation is key to long-term and sustainable expansion." Such remarks contributed to a stronger dollar and rising interest rates, leading to the U.S. stock market’s decline.

On the other hand, the rapid decline in U.S. rent prices could ease inflationary pressures, which is positive for the domestic stock market. Realtor.com, a real estate online platform, announced in its rental report that October rents rose 4.7% year-over-year, marking the slowest increase in 18 months. Realtor.com noted some relief from the double-digit rent increases experienced during the COVID-19 pandemic. While rents have not officially entered a downward trend, the data indicate a return to normalization.

Sharp volatility in interest rates creates significant uncertainty for buyers and sellers in the housing market, but there are almost no buyers willing to purchase homes while paying high mortgage rates. Housing costs are now showing signs of significant slowdown, suggesting that downward pressure on the CPI will expand further. As a result, the early session’s dollar strength diminished, and the stock market stabilized.

The U.S. stock market’s early decline due to hawkish Fed officials’ remarks and heightened economic slowdown concerns is a burden. In particular, the continued strength of the dollar and weakness of the Korean won could negatively affect foreign investor flows.

However, the rapid pace of rent declines in the U.S. helped reduce the extent of the U.S. market’s losses, which is positive. The ongoing issue of economic slowdown, including the widening inversion of short- and long-term interest rates, remains a concern. Considering this, the domestic stock market is expected to start down about 0.3%, followed by a buying surge focused on stocks that experienced large declines in the previous trading day.

◆ Han Ji-young, Researcher at Kiwoom Securities = Fed President Bullard indicated that it will take more than a year for the Fed to control inflation and projected the terminal policy rate to be in the 5?7% range, exceeding the upper bound previously suggested by the Fed. This also appears to be aimed at curbing excessive market expectations.

Despite positive factors such as a 1.05% rise in the Philadelphia Semiconductor Index and rebounds in some large tech stocks, the uncertainty over Fed tightening triggered by Bullard’s remarks is expected to weigh on the domestic stock market, which is likely to show a weak trend on the day. Since last month, there has been no case of foreign investors continuing net sales for two consecutive days based on the KOSPI, so it is necessary to monitor whether the strength of foreign net buying weakens.

Also, due to the visit of Mohammed bin Salman, Crown Prince and Prime Minister of Saudi Arabia, volatility has increased with sharp rises in Neom City and hydrogen-related stocks the previous day, so caution is needed as selling pressure may emerge in related stocks.

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