[Good Morning Market] CPI Slowdown Expectations... Forecast for Stock-Specific Market

Nasdaq Rises Over 1% Despite Economic Recession and Sharp Increase in Government Bond Yields
Stock-Specific Earnings Market Expected Ahead of December CPI Announcement

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] The US stock market yesterday continued a stock-specific trend as investors awaited the release of inflation data (December CPI). During the session, concerns about a recession and rising Treasury yields were digested, increasing expectations for a slowdown in inflation data. The Nasdaq index rose 1.01%, while the Dow Jones Industrial Average (0.56%), S&P 500 index (0.7%), and Russell 2000 index (1.49%) also increased.

Sangyoung Seo, Researcher at Mirae Asset Securities: “Stock-specific trend expected ahead of CPI release”

Last night’s key issues to watch were the World Bank’s downward revision of global GDP growth and statements from Federal Reserve (Fed) officials. The World Bank lowered its global GDP growth forecast for this year from 3% announced last year to 1.7%. For the US, the revision was from 2.2% down to 0.5%. China’s forecast was reduced from 5.2% to 4.3%. The main reasons cited were reduced investment due to inflation and interest rate hikes, as well as the prolonged Russia-Ukraine war.

Although this issue could have heightened recession concerns, the market showed little reaction. This is because most factors increasing recession risk are expected to ease this year, so the impact is not anticipated to persist. Considering the sharp drop in Eurozone natural gas prices avoiding an energy crisis and China’s active economic stimulus measures, the recession impact is expected to be less severe than initially thought.

During the session, Treasury yields rose as Fed Chair Jerome Powell and other key officials emphasized the need for additional measures to reduce inflation. However, the Nasdaq index, which is tech-heavy, rose supported by rebound buying.

The US stock market’s strength centered on individual stocks is positive for the Korean market. In particular, the Russell 2000 index’s 1.49% rise, which was larger than other indices, indicates strong investor sentiment. Considering this, the domestic market is expected to open with a rise of around 0.5%. With the CPI release imminent, a stock-specific trend influenced more by earnings announcements than by the index itself is anticipated.

Wonil Jung, Researcher at Yuanta Securities: “Decline in ISM Services Index is a factor raising expectations for a monetary policy pivot”

Key sentiment indicators reflecting economic conditions, such as the ISM Manufacturing Index and various countries’ Purchasing Managers’ Indices (PMIs), have fallen below baseline levels compared to before. In December, the US ISM Services Index was 49.6 points, below the baseline of 50 points. Considering the previous month’s 56.5 points, this is a sharp decline.

The services-related index reflects the strength of actual consumer demand. Over the past 10 years, this index has not fallen below the baseline except during the COVID-19 outbreak period. While there have been rises and falls, it has not dropped below the baseline. Considering the US economic structure where consumer spending greatly influences growth, this sharp decline in the index can be interpreted as a signal marking the start of a recession.

Despite the ongoing recession, the Fed’s ability to advocate strong tightening is supported by a robust labor market. As of December, the unemployment rate was below market expectations, and employment growth showed a stable trend. However, the market is focusing on the slowdown in hourly wage growth. While a wage slowdown primarily means cost reductions and can be seen as a sign of easing inflation, it can also be interpreted as producers adjusting behavior in response to weakening demand in the sector. This is the hidden side of the seemingly strong labor market and a factor raising expectations for a Fed monetary policy pivot.

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