[Good Morning Stock Market] US CPI is a Positive Factor, FOMC Caution, TikTok Ban Law is a Negative Factor

US November CPI Year-on-Year at 7.1%, Below Expectations
FOMC Uncertainty Weighs on Stock Market... Focus on Final Interest Rate Forecast

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] On the 14th, the Korean stock market is expected to start higher due to the U.S. Consumer Price Index (CPI) results falling short of expectations. However, the upward momentum is expected to be limited. The market's focus now shifts to the dot plot indicating the terminal interest rate. Ahead of the December Federal Open Market Committee (FOMC) regular meeting, heightened caution may lead the KOSPI index to turn downward.

On the previous day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,108.64, up 103.60 points (0.30%) from the previous session. The large-cap S&P 500 index rose 29.09 points (0.73%) to 4,019.65, and the tech-heavy Nasdaq index ended the day at 11,256.81, up 113.08 points (1.01%).

Seo Sang-young, Head of Future Asset Securities: "KOSPI expected to start up around 0.7% then turn downward"

The Korean stock market is expected to start up around 0.7%, but concerns ahead of the FOMC results are likely to cause a downward turn. In particular, supply and demand factors such as continued foreign selling despite the won’s appreciation are expected to play an important role.

The U.S. CPI for November rose 7.1% year-on-year, which is below the forecast (7.3%) and last month’s figure (7.7%). The core CPI, excluding food and energy prices, also rose 6.0% year-on-year, slowing compared to the forecast (6.1%) and last month (6.3%).

The recent sluggishness in the Korean stock market is largely due to selling pressure ahead of the U.S. CPI and FOMC. Therefore, yesterday’s CPI results could increase the possibility of changes in foreign demand and supply. If the Federal Reserve announces a terminal rate of 5.00% at the December FOMC as the market expects, the upward momentum could expand toward the end of the year.

The U.S. stock market initially surged sharply after the CPI results but gave up some gains. This was due to Tesla’s increased decline leading the battery and automobile sectors downward. The KOSPI is also expected to close down slightly by 0.03%, with the decline limited by expectations of price stability.

There are also external negative factors. The reemergence of U.S.-China tensions, such as the U.S. Congress proposing a full ban on TikTok, is a burden. The postponement of China’s economic work conference due to COVID-19 also raises concerns. Considering this, the Korean stock market is expected to start slightly higher, then focus on changes in the Chinese stock market while increasing caution ahead of the FOMC.

Han Ji-young, Kiwoom Securities Researcher: "U.S. CPI and Nasdaq expected to start higher as positive factors"

The Korean stock market is expected to start on an upward trend. November’s U.S. CPI came in below expectations (7.3%), which, along with a strong U.S. stock market and a sharp drop in the won-dollar exchange rate (offshore -18 won), is expected to influence the market. However, cautious sentiment ahead of the December FOMC announcement scheduled for early tomorrow morning is expected to limit the index’s upside during the session.

Stocks in the automobile and parts sectors, which experienced a sharp simultaneous decline due to IRA-related negative factors the previous day, are expected to show a price rebound. Supported by falling bond yields and a weaker dollar, growth stocks such as platforms and secondary batteries are also expected to perform well.

The November CPI results, the first hurdle determining whether a year-end rally will occur, all recorded lower-than-expected increases. However, as indicated by the intraday reversal in the U.S. stock market yesterday, the market is now waiting for the December FOMC and refraining from excessive position betting.

Additionally, among the November CPI items, housing costs (6.9% → 7.1%) and rent (7.5% → 7.9%)?real estate-related items?showed an upward trend, which raises market concerns about inflation becoming entrenched.

A 50 basis point (1 bp = 0.01 percentage point) rate hike at the December FOMC is a foregone conclusion. The key issue is the dot plot. Whether a year-end rally occurs depends on the 2023 terminal rate level and the duration of the higher-for-longer policy.

Terminal rate expectations have dropped from 5.25% to 5.0% after the CPI announcement. Considering recent circumstances, the possibility that the December FOMC will produce a result below neutral for the stock market is judged to be low. Also, based on past patterns, the real market reaction has occurred one to two trading days after the FOMC, so it is wise to confirm the FOMC results and respond afterward.

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