[Weekly Market Outlook] US CPI to Determine 'KOSPI Direction'... Will It Break the 2500 Resistance?

Tightening Monetary Policy or Expecting a Soft Landing?
Strong Optimism Due to Expectations of Economic Stimulus in China

[Asia Economy Reporter Lee Seon-ae] This week (13th-17th), the direction of the domestic stock market is expected to hinge on the U.S. January Consumer Price Index (CPI) announced on the 14th. If inflation slowdown is confirmed, optimism will strengthen; however, if the figures disappoint expectations, the market is likely to remain in a trading range. Currently, market sentiment leans more toward optimism. Attention is focused on whether the KOSPI, which has entered a breather phase due to profit-taking from recent price gains, can break through the 2500 resistance level.

[Image source=Yonhap News]

The securities industry expects the upcoming CPI to rise 6.2% year-on-year, lower than the previous month of December last year (6.7%). Compared to the 0.1% decline in December last year, this level could raise inflation concerns. However, from this year, the CPI will reflect changes in item weights, which could send a positive signal to the market. Ultimately, the market's interpretation is key. Kim Young-hwan, a researcher at NH Investment & Securities, said, "The change in item weights in the CPI is a positive factor for nominal price stability," adding, "The issue lies in the market's interpretation, but recently, the financial market has been strongly optimistic about the economy and monetary policy."

Jo Byung-hyun, a researcher at Daol Investment & Securities, said, "If the strengthened preference for risk assets since the end of last year stems from confidence in the Federal Reserve's terminal rate, market sentiment will remain proactive until evidence undermines this," adding, "If the CPI is announced in a way that alleviates inflation concerns, the stock market will continue its upward attempts." Researcher Kim also emphasized, "Optimism can continue until the March Federal Open Market Committee (FOMC) meeting, which is relatively certain to follow market expectations, and price stability is likely to be interpreted positively in the stock market."

However, caution is also expressed. Lim Dong-min, a researcher at Kyobo Securities, analyzed, "The U.S. headline CPI and core CPI for January are expected to increase by 6.2% and 5.5% year-on-year, respectively," adding, "It is difficult to guarantee inflation stability in the U.S. economy at these relatively high inflation rates." Kim Yumi, a researcher at Kiwoom Securities, predicted, "If the pace of inflation slowdown does not ease faster than market expectations, the high interest rate level will persist longer, increasing market caution." Park Hee-chan, head of the Global Asset Allocation Team at Mirae Asset Securities, analyzed, "The consensus for core inflation is formed at 0.4% month-on-month. Although the consensus is somewhat high, reducing the risk of shocks, 0.4% is not a low figure, so a lower number is needed to ease Fed tightening concerns."

Those viewing market optimism also cite expectations for China's economic stimulus as a positive factor. It is anticipated that strong stimulus measures will be announced at China's Two Sessions in March. According to the Chinese Center for Disease Control and Prevention on the 8th, the COVID-19-related death rate and number of severe cases in Chinese hospitals have decreased by 98% from the peak recorded in early January. This indicates that after the Chinese government relaxed COVID-19 control policies and initial confusion, the situation has stabilized, raising expectations for economic normalization, according to securities industry evaluations. Researcher Kim said, "This week, the KOSPI is expected to move between 2450 and 2580 points," emphasizing, "The continued slowdown in U.S. inflation, dollar weakness, and expectations for China's economic stimulus will work together."

Shinhan Investment Corp. noted that this week’s U.S. CPI, Producer Price Index (PPI), and export-import price results will comprehensively confirm U.S. inflation factors, and the market will assess domestic and external conditions through U.S. inflation, Korean export-import prices, and employment indicators. Park Seok-jung, a research fellow at Shinhan Investment Research, emphasized, "In January, strong risk appetite was demonstrated due to weakened concerns about inflation and recession," adding, "This week, a new trend is expected to be determined based on inflation, earnings, and real economy indicators."

Moon Nam-jung, a researcher at Daishin Securities, said, "The market's direction will depend on which side it weighs more?the Federal Reserve's monetary tightening or expectations for a soft economic landing?based on three economic indicators: inflation, consumption, and housing, which could serve as milestones for rising expectations of economic recovery," adding, "However, since the January employment data was already interpreted as a sign of Fed tightening, causing increased market volatility, this time the market is expected to choose the latter (soft landing expectations), increasing the stock market's downside rigidity."

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