[Good Morning Stock Market] "Expected KOSPI to Start 0.5% Lower, Shrinking Due to FOMC Results"

Unexpected Hawkish Mode Leads to Simultaneous Decline of US Top 3 Indexes
Intraday Market Interest Rates and Won-Dollar Exchange Rate Should Be Watched

[Image source=Yonhap News]

[Asia Economy Reporter Kwangho Lee] The U.S. stock market collectively declined due to the shock of "Hawkish Powell." On the 14th (local time), Federal Reserve (Fed) Chair Jerome Powell raised the peak interest rate to 5.1%. The Dow Jones Industrial Average closed at 33,966.35, down 142.29 points (-0.42%) from the previous session, the large-cap focused S&P 500 index fell 24.33 points (-0.61%) to 3,995.32, and the tech-heavy Nasdaq index also dropped 85.93 points (-0.76%) to close at 11,170.89.

The mood of the three major indices completely reversed around 2 p.m. on the day the Fed's Federal Open Market Committee (FOMC) results were announced. Until just before, there was a slight rise on expectations of a peak in inflation, but immediately after the Fed's monetary policy stance was revealed, the market sharply fell, showing volatility.

According to the dot plot released by the Fed that day, out of 19 FOMC members, 10 expected the terminal rate next year to be between 5.00% and 5.25%. The economic outlook presented a next year's rate level of 5.1%. Five members projected 5.25% to 5.50%, and two expected it to rise to 5.50% to 5.75%. Only two members anticipated it to remain between 4.75% and 5.00%.

This is expected to weigh on the domestic stock market. On the 15th, the domestic market is expected to start down about 0.5%. Changes are expected depending on foreign investor flows.

◆ Sangyoung Seo, Head of Media Content Division at Mirae Asset Securities = The Fed raised rates by 50 basis points (1bp=0.01%) and lowered next year's growth forecast from 1.2% to 0.5% in its economic report. The unemployment rate was revised upward from 4.4% to 4.6%, indicating economic uncertainty. Additionally, the core inflation forecast for next year was raised from 3.1% to 3.5%, suggesting that high inflation will persist.

Notably, the peak interest rate for next year was revised upward from the previous 4.6% range to 5.1%, with five members forecasting 5.3% and two expecting 5.7%. The unexpectedly high rate level dampened the optimistic sentiment following the significant downward revision of the Consumer Price Index (CPI) the previous day, resulting in a stronger dollar, rising interest rates, and falling indices.

This outcome aligns with the market's expectations before the CPI announcement. However, the increased market volatility is presumed to be due to heightened expectations for the FOMC following the CPI results. As Powell mentioned, the possibility of lowering the peak rate if inflation declines further was highlighted, causing some rebound and increased volatility.

However, according to CME FedWatch, the probability of a 25bp hike at the February FOMC meeting next year rose from 35% to 59%. The market still expects the peak rate to be below 5%, so positive outlooks for the year-end stock market are likely to be maintained.

◆ Jiyoung Han, Researcher at Kiwoom Securities = The market turned downward after the FOMC results. Uncertainty about the pace of tightening at the Bank of England (BOE) and European Central Bank (ECB) monetary policy meetings on the 15th is also emerging.

By sector, all sectors except healthcare (+0.1%) declined, with consumer staples (-0.1%) and utilities (-0.2%) showing the smallest drops. Financials (-1.3%), materials (-1.1%), and real estate (-1%) experienced the largest declines. Tesla's stock price (-2.58%) fell due to concerns raised by Goldman Sachs about Elon Musk's management of Twitter, as well as analyses pointing to a serious increase in electric vehicle supply and potential demand deterioration.

There is little room for a full-fledged Santa rally that the market had expected before the CPI and FOMC events. However, considering that there are no major macro events remaining this year, the major stock markets in Korea, the U.S., and other countries are expected to show neutral or better price trends until year-end.

On the 15th, the domestic stock market is expected to start lower due to short-term profit-taking and the hawkish December FOMC results, but it is likely to show a recovery during the day similar to the U.S. market. Attention should be paid to intraday changes in market interest rates and the KRW-USD exchange rate.

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