[Good Morning Market] US Stocks Plunge Amid High Inflation Concerns... KOSPI Expected to Start Lower

US January PPI Exceeds Expectations
Fed Official's Hawkish Remarks Boost Tightening Outlook

[Asia Economy Reporter Lee Jung-yoon] The U.S. stock market closed lower due to the Producer Price Index (PPI) exceeding expectations and hawkish remarks from Federal Reserve (Fed) officials.

On the 16th (local time), the Dow Jones Industrial Average fell 431.20 points (1.26%) to close at 33,696.85, the S&P 500, focused on large-cap stocks, dropped 57.19 points (1.38%) to 4,090.41, and the tech-heavy Nasdaq declined 214.76 points (1.78%) to finish at 11,855.83.

[Image source=Reuters·Yonhap News]

The U.S. January PPI rose 6.0% year-over-year and 0.7% month-over-month, surpassing market expectations of 5.4% and 0.4%, respectively. Notably, the month-over-month increase was the largest since June last year. This suggests that inflation may persist longer than anticipated, intensifying concerns about Fed tightening. There are even forecasts that the Fed will raise the benchmark interest rate by 0.5 percentage points at the March Federal Open Market Committee (FOMC) meeting.

Hawkish comments from Fed officials reinforced these expectations. Loretta Mester, President of the Cleveland Federal Reserve Bank, stated, "At the last FOMC, we saw a compelling case to raise rates by 0.5 percentage points, contrary to market expectations," adding, "It will take time to stabilize prices, and there will be pain involved." James Bullard, President of the St. Louis Fed, also said, "Inflation remains too high," and "I advocated for a 0.5 percentage point increase." At the previous FOMC meeting, the benchmark rate was raised by 0.25 percentage points, a unanimous decision. However, Presidents Mester and Bullard do not have voting rights on rate decisions this year.

In the U.S. stock market, sectors sensitive to interest rates saw notable declines. Microsoft (MS) and Disney each fell more than 2%, while Tesla plunged 5.69% following news of a recall of approximately 360,000 electric vehicles due to controversy over retaliatory personnel moves and risks related to fully autonomous driving collisions. Meta dropped 2.66%, Amazon 2.98%, and Nvidia 3.35%.

On the 17th, the domestic stock market is expected to see strong profit-taking pressure due to late-session profit-taking in the U.S. market and growing concerns about Fed tightening. Kim Seok-hwan, a researcher at Mirae Asset Securities, said, "Given that recent foreign investor flows have a large proportion of arbitrage trading involving futures, attention should be paid to foreign investors' futures selling during the session," explaining, "Unlike the previous day, this could lead to arbitrage selling by domestic institutions, increasing intraday volatility."

He added, "It is also necessary to monitor the potential increase in selling pressure through program trading." Researcher Kim forecasted that the KOSPI would start the day down about 0.5%.

Han Ji-young, a researcher at Kiwoom Securities, predicted that the U.S. stock market would continue to trade within a range. Han said, "In an environment where both interest rates and stock markets rise together, the Fed is likely to continue hawkish remarks to control market overheating, so the range-bound market is expected to persist until the March inflation data is confirmed," adding, "The rise of the 10-year U.S. Treasury yield to near-year highs has been a burden on growth stocks and other risk assets."

She also advised monitoring the yen's movement. Han Ji-young said, "Considering that the January Consumer Price Index (CPI) in the UK and Eurozone remains high while the pound and euro have shown little volatility and sideways movement, the yen?which has the second-largest weight in the Dollar Index after the euro?has weakened recently, contributing to the dollar's strength," adding, "The weakening of the won-dollar exchange rate could dampen foreign investors' net buying momentum, so it is necessary to closely watch the yen's movement and the Bank of Japan (BOJ) policy."

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