[MarketING] Taking a Breather While Awaiting US CPI

KOSPI and KOSDAQ Decline in One Day
Rising Caution Ahead of US June CPI Announcement

The KOSPI and KOSDAQ turned bearish after a day of gains. The market is taking a breather as cautious sentiment spreads ahead of the U.S. inflation data release, weighed down by the previous day's rise. As investors await the U.S. June Consumer Price Index (CPI) results scheduled for tonight, the market is expected to show limited movement.

KOSPI Turns Bearish After One Day... Falls Below 2560 Early in the Session

As of 10:20 a.m. on the 12th, the KOSPI was down 3.95 points (0.15%) from the previous day, standing at 2558.54. The KOSDAQ fell 0.57 points (0.06%) to 878.16.

[Image source=Yonhap News]

While the U.S. stock market rose due to expectations of easing inflation, optimistic economic indicators, and improved investor sentiment, the domestic market is showing weakness, interpreted as a reaction to the heavy gains from the previous day. On the 11th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 0.93%, the S&P 500 increased 0.67%, and the Nasdaq climbed 0.55% compared to the previous day.

Na Jung-hwan, a researcher at NH Investment & Securities, explained, "The U.S. stock market rose due to expectations of easing inflation. The June small business optimism index also showed a slight rebound since April, alleviating recession concerns, which positively influenced stock prices."

The June small business optimism index released by the National Federation of Independent Business (NFIB) recorded 91.0, up 1.6 points from 89.4 in May, marking the highest level since November last year. Expectations for future economic improvement rose from -50% to -40%, reaching the highest level since February last year. Kim Seok-hwan, a researcher at Mirae Asset Securities, analyzed, "The outlook for business conditions over the next six months led the improvement. Items such as small businesses' profit trends, expected credit conditions, and the timing being right for business expansion improved compared to the previous month."

Due to profit-taking and other factors, the domestic market is expected to show limited movement. Han Ji-young, a researcher at Kiwoom Securities, said, "Despite expectations for technical momentum recovery with the KOSPI returning to its 60-day moving average (2557 points), the market will likely show limited price movement due to cautious sentiment ahead of the U.S. CPI release and profit-taking in secondary battery stocks, which had been leading the market even during recent corrections."

Short-Term Direction Likely Determined by U.S. CPI Reaction

The market, which has been troubled by tightening concerns recently, is closely watching the U.S. June CPI to be announced tonight. Since the Federal Reserve (Fed) has left open the possibility of two additional rate hikes this year, the CPI data is expected to provide clues on whether further hikes will occur.

One researcher noted, "In the past one to two trading days, major markets such as the KOSPI and Nasdaq have rebounded, and the U.S. 10-year Treasury yield has fallen back below 4%, creating a favorable environment for risk assets. This is because, despite lingering concerns about two rate hikes and hawkish remarks from Fed officials, market participants are hopeful for a slowdown in the CPI to be announced tonight."

The consensus forecast for June CPI currently stands at 3.1% for headline CPI and 5.0% for core CPI, compared to 4.0% and 5.3% last month. The researcher added, "Given that both figures are likely to slow compared to last month, it is expected to reaffirm the downtrend in inflation levels. Considering that in last month's Bank of America (BoA) Global Fund Manager Survey, inflation and tightening (36% response rate) ranked first as potential market risks, surpassing credit crunch and recession (22%) and geopolitical conflicts (17%), a further decline in June inflation alone could produce a market-friendly outcome."

If the CPI meets or falls below expectations, a positive impact on the stock market is anticipated. Lee Kyung-min, a researcher at Daishin Securities, said, "If the CPI meets or falls short of expectations, it will be a surprise momentum for the stock market. This could lead to a downgrade in the probability of a rate hike in November, a decline in bond yields, and a reversal of the dollar's strength, all of which would positively affect the market." He added, "Since the market has been burdened by concerns over additional rate hikes, a strong rebound can be expected."

It is forecasted that the market's short-term direction will be determined after this CPI release. Choi Yoo-jun, a researcher at Shinhan Investment Corp., said, "Recently, the market has been reacting sensitively to hawkish (monetary tightening preference) June Federal Open Market Committee (FOMC) stance, strong U.S. growth, significant private employment gains, large wage increases in June, and easing inflation expectations. The short-term direction will be decided based on how much the financial market reflects the possibility of two additional rate hikes through the June CPI."

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