[Good Morning Stock Market] Despite Relief from US CPI, Profit-Taking Pressure... KOSPI Expected to Start Lower

Expected Underperformance in July CPI Also Leads to US Stock Market Giving Up Gains
"Profit-Taking Desire and Increased Volatility Are Burdens"

Image source=AP·Yonhap News

The domestic stock market is expected to start lower on the 11th. Although the U.S. July Consumer Price Index (CPI) increase was below expectations, the desire for profit-taking in the U.S. stock market led to giving up early gains, which is analyzed to act as a burden.

On the 10th (local time), the Dow Jones Industrial Average closed at 35,176.15, up 52.79 points (0.15%) from the previous session, the large-cap S&P 500 index ended at 4,468.83, up 1.12 points (0.03%), and the tech-heavy Nasdaq index closed at 13,737.99, up 15.97 points (0.12%).

The U.S. July CPI rose 3.2% year-on-year, slightly below the market forecast of 3.3%. Although the increase was larger compared to June’s 3.0%, which was the lowest in over two years, the overall trend showed a continued easing. Month-on-month, it rose 0.2%, meeting expectations. The core CPI, excluding volatile energy and food, increased 4.7% year-on-year, below June’s 4.8%, and rose 0.2% month-on-month.

Unemployment indicators also continued to rise for the second consecutive week, raising expectations for the end of the Federal Reserve’s (Fed) tightening cycle. According to the U.S. Department of Labor, new unemployment claims for the week of July 30 to August 5 increased by 21,000 to 248,000, exceeding the market expectation of 230,000. There has been ongoing argument that the labor market overheating must cool down for the tightening to end.

Thanks to these indicators, the outlook for a rate hold in September is dominant. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) futures market reflects about a 90% chance that the Fed will keep rates unchanged at the September Federal Open Market Committee (FOMC) meeting.

However, remarks from Fed officials caused the early gains driven by rate-hold expectations to be given back. Mary Daly, President of the Federal Reserve Bank of San Francisco, said, "Most of it came out as expected, and that is good news," but added, "This is not a data point that says victory in the fight against inflation is ours."

The domestic stock market is expected to start lower on the day. Sangyoung Seo, Head of Media Content at Mirae Asset Securities, said, "The early Nasdaq index rise of over 1.6%, supported by the continuous slowdown in core CPI excluding housing costs in the U.S. stock market, is favorable for the domestic market," adding, "This is because it could control the Fed’s hawkish moves, positively influencing investor sentiment."

He continued, "However, the burden comes from the fact that after the early rise, profit-taking desires increased over time, leading to selling pressure. Especially, the semiconductor sector, which rose 2% early after the CPI announcement, turned to a 1% decline due to increased profit-taking, expanding volatility," and explained, "This is presumed to be due to valuation pressure after the rise driven by expectations for the artificial intelligence (AI) industry." Seo predicted that the domestic market would start down about 0.3% and then show increased volatility as it absorbs selling pressure.

Ji-young Han, a researcher at Kiwoom Securities, said, "Despite favorable CPI results, semiconductor investment sentiment weakening limits the upside, while volatility in supply and demand in the secondary battery sector and differentiation by sector and theme such as Chinese consumer stocks are expected to continue," adding, "The Chinese government announced the resumption of group tours to Korea for the first time in 6 years and 5 months since the THAAD retaliation, and sectors such as cosmetics, duty-free, department stores, casinos, and airlines, which were undervalued, showed strong performance as a sector on the previous day, but future stock price trends are expected to be differentiated."

She added, "Meanwhile, the concentration in the secondary battery sector eased as fatigue accumulated since the extreme volatility on July 26, and supply and demand dispersed to sectors such as pharmaceuticals & biotech, software, and internet," and explained, "The August regular review results of Morgan Stanley Capital International (MSCI) released this morning announced new inclusions of EcoPro, Hanmi Semiconductor, Hanwha Ocean, and JYP, while Kumyang and POSCO DX were excluded."

She continued, "Since there had been buying aimed at passive fund inflows due to index inclusion, this could be a factor expanding supply and demand volatility in the secondary battery sector today," and added, "If foreign and institutional demand starts to come in, a rebound centered on large-cap stocks rather than mid- and small-caps is possible."

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