[MarketING] Growing Caution Ahead of Powell's Congressional Testimony

KOSPI Steady Ahead of Powell's Congressional Testimony
US Markets Also Mixed Amid Cautious Trading Yesterday

The KOSPI is fluctuating within a narrow range. This is interpreted as a result of cautious sentiment ahead of the congressional hearing of Jerome Powell, Chair of the U.S. Federal Reserve (Fed). Given that the stock market is highly sensitive to macro variables, volatility is expected to increase depending on Powell's remarks.

KOSPI Turns Up After a Weak Start

As of 10:25 a.m. on the 7th, the KOSPI was up 2.75 points (0.11%) from the previous session, standing at 2465.37. The KOSDAQ rose 1.67 points (0.2%) to 814.84. The KOSPI started weak for the first time in five days but turned upward and is now moving within a narrow range.

This is interpreted as cautious sentiment ahead of Powell's congressional hearing. The U.S. stock market also closed mixed for the same reason. On the 6th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 0.12%, and the S&P 500 increased by 0.07%, while the Nasdaq Composite fell 0.11%.

Sangyoung Seo, a researcher at Mirae Asset Securities, explained, "The U.S. stock market gave back gains due to intraday shifts to rising Treasury yields and a narrowing of the dollar's weakness, which burdens the domestic market. The desire for profit-taking has increased, raising the possibility of selling pressure after four consecutive days of gains. With Powell's Senate hearing on monetary policy approaching, the shift to rising yields and reduced dollar weakness are factors that dampen investor sentiment."

Chairman Powell is scheduled to appear before the Senate at 10 a.m. Eastern Time on the 7th and the House at 10 a.m. on the 8th to report on monetary policy for the first half of the year and answer lawmakers' questions. Previously, Powell boosted stock prices by mentioning disinflation during the FOMC regular meeting press conference, but at a Washington DC Economic Club discussion on the 7th of last month, he said that if economic indicators are stronger than expected, interest rates could rise further, which pulled stock prices down. If he mentions disinflation again during this hearing and expresses a view that inflation will ease, it is likely to be positive for stocks. However, if he emphasizes the possibility of additional rate hikes due to strong economic data, negative effects are inevitable.

Ji-young Han, a researcher at Kiwoom Securities, said, "Late last week, Raphael Bostic, President of the Atlanta Federal Reserve Bank, expressed a preference for a 25bp (1bp=0.01 percentage point) rate hike, which improved risk appetite. However, market participants now face uncertainty surrounding Powell's testimonies before the Senate and House and the upcoming U.S. employment data scheduled for the 10th. Considering the rising probability of a 50bp hike at the March Federal Open Market Committee (FOMC) meeting, it appears that the market has already priced in expectations that Powell's remarks will be more hawkish than at the February FOMC press conference." According to the Chicago Mercantile Exchange (CME) FedWatch tool, the probability of a 50bp hike at the March FOMC is currently 30.6%.

Volatility in the stock market is expected to increase as it digests events such as Powell's remarks and employment data. The researcher added, "Since the market has previously faced unexpected outcomes regarding inflation, employment, or Fed officials' comments in February, there is a mood to keep the possibility of surprises open this time as well. As major macro events unfold this week, frequent short-term position adjustments by market participants may expose prices to volatility, so it is appropriate to prepare for this."

Increased Desire for Profit-Taking After Recent Gains

The desire for profit-taking has also increased following recent gains.

On this day, selling pressure appeared mainly in stocks that had shown notable recent gains. Semiconductors, which led the index's rise the previous day, are showing weakness. Samsung Electronics is down 1.14%, and SK Hynix is down 0.67%. EcoPro BM, which surged more than 19% the previous day, is down about 2%, and L&F is falling more than 4%. Researcher Seo said, "The desire for profit-taking is high, and selling pressure is expanding mainly in stocks that led the recent rise, showing a weak performance."

Another researcher analyzed, "This is not a price correction but a time correction in February, so valuation pressure has not been sufficiently relieved. Such valuation pressure may stimulate the desire to realize profits accumulated during the January rally."

In particular, foreign investors who led the January market rebound are likely to sell for profit-taking. Kyungmin Lee, a researcher at Daishin Securities, said, "Considering foreign investors' trading patterns, the timing of the March FOMC, and the recent rebounds in the dollar and bond yields, it is judged that foreign investors are likely to sell for profit-taking until mid to late March."

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