[Good Morning Stock Market] "KOSPI Starts Flat... Rebound Expected with Inflow of Buyback Demand"

US Stock Market Closes Lower on Hawkish Remarks
Positive Rebound Buying and Calls for Adjusting Key Interest Rate Figures

[Image source=Reuters·Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] The U.S. stock market closed lower as concerns over tightening policies by major central banks, including the Federal Reserve (Fed), and fears of an economic recession persisted. On the 16th (local time), the Dow Jones Industrial Average fell 281.76 points (0.85%) to close at 32,920.46, the large-cap-focused S&P 500 dropped 43.39 points (1.11%) to 3,852.36, and the tech-heavy Nasdaq Composite declined 105.11 points (0.97%) to finish at 10,705.41.

Market participants expressed worries that tightening by the Fed and other major central banks could lead to an economic recession. The Fed’s December Federal Open Market Committee (FOMC) dot plot raised the terminal rate forecast for next year from 4.6% in September to 5.1%. In this context, John Williams, President of the New York Federal Reserve Bank, stated that "the terminal rate could be higher" regarding further rate hikes.

Economic indicators heightened concerns about a recession. The U.S. manufacturing Purchasing Managers’ Index (PMI) for December, compiled by S&P Global, recorded 46.2, marking the lowest level in 31 months. A reading below the baseline of 50 indicates contraction in the manufacturing sector. The U.S. services PMI for December also fell to 44.4 from 46.2 in the previous month.

These factors contributed to the U.S. stock market closing lower, which is expected to weigh on the domestic market. However, the inflow of rebound buying before the close and Fed officials’ remarks that the peak interest rate could be higher than market expectations but may be adjusted based on data are positive signs. Considering this, the domestic stock market is expected to start the session on the 19th in a flat range.

◆ Seo Sang-young, Head of Media Content at Mirae Asset Securities = Mary Daly, President of the San Francisco Fed, mentioned that "the peak interest rate will remain higher and longer for more than 11 months if necessary," indicating that the benchmark rate could rise further. However, she also said that policy would be adjusted depending on economic data.

Loretta Mester, President of the Cleveland Fed, said, "Recent inflation figures are positive, but volatility is expected to persist, so it will take time for inflation to decline," and added, "I expect rate hikes beyond the Fed’s median projection."

Overall, Fed officials argued that the peak interest rate needs to be higher. They also suggested that the period of maintaining the peak rate will be extended.

Although the U.S. stock market struggled due to hawkish remarks from Fed officials, the inflow of rebound buying near the close helped reduce losses, which is positive for the domestic market. Additionally, the mention that the magnitude of rate hikes could be adjusted based on economic data is expected to positively influence investor sentiment. Considering this, the domestic market is expected to start flat but rebound amid inflows of rebound buying, similar to the U.S. market.

◆ Han Ji-young, Researcher at Kiwoom Securities = This week, the domestic stock market is expected to enter a data-sensitive phase influenced by tightening effects from central banks worldwide, U.S. housing data, November personal consumption expenditure (PCE) price index, and Micron’s earnings announcement.

Key Fed officials continued to issue cautionary remarks. The Fed is inevitably wary of excessive expectations for policy easing amid inflation slowdown. Failure to control inflation expectations could lead to a rebound in actual inflation, so hawkish voices are expected to persist.

Furthermore, sensitivity regarding the intensity of a recession has increased. Therefore, indicators that were relatively less important compared to major macro events are expected to have a greater impact on the stock market direction this week.

Projections and stock price changes surrounding the top market capitalization sectors following Micron’s earnings announcement are expected to be short-term variables determining the overall direction of the domestic stock market.

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