[Good Morning Stock Market] Rising US Treasury Yields and Powell's Remarks Weigh Down... "KOSPI Expected to Start Lower"

US 10-Year Treasury Yield Surpasses 5%
Concerns Over Potential Further Rate Increases

Image source=AP·Yonhap News

The domestic stock market is expected to start lower on the 20th. This is due to the continued rise in U.S. Treasury yields, which is analyzed to put pressure on the domestic stock market and economy.

On the 19th (local time), the Dow Jones Industrial Average closed at 33,414.17, down 250.91 points (0.75%) from the previous session. The S&P 500, focused on large-cap stocks, fell 36.60 points (0.85%) to 4,278.00. The tech-heavy Nasdaq index ended the day down 128.13 points (0.96%) at 13,186.18.

Jerome Powell, Chair of the U.S. Federal Reserve (Fed), and the rise in Treasury yields negatively impacted the market. Powell pointed to high inflation and stronger-than-expected economic indicators, signaling his intention to continue tightening monetary policy. He said, "Inflation remains elevated," and added, "If there is more evidence of below-trend growth or if the labor market does not ease, additional tightening may be necessary."

He also explained, "The rise in Treasury yields has tightened financial conditions," and "Ongoing changes in financial conditions could influence the direction of monetary policy." However, he noted, "We will proceed cautiously, considering how far we have come." The likelihood of the Fed holding the benchmark interest rate steady at the November meeting has risen to over 90%, with his remarks about proceeding cautiously amid uncertainty and risks increasing the possibility of a rate pause.

U.S. Treasury yields showed an upward trend. The 10-year Treasury yield reached 5.001% at 5 p.m. local time on that day. This is the first time in 16 years, since July 2007, that the 10-year Treasury yield has risen above 5%. Powell’s comments that the current high rates will be maintained for a longer period pressured the market.

Weekly initial jobless claims fell to their lowest level in nine months. According to the U.S. Department of Labor, initial jobless claims for the week ending the 14th were 198,000, down 13,000 from the previous week. This is the lowest weekly figure since January 21. It is below Wall Street’s forecast of 210,000. This suggests that despite tightening policies, the labor market remains robust, reinforcing expectations of prolonged high interest rates.

Additionally, Tesla’s disappointing earnings report, which caused its stock to drop 9.30%, negatively affected investor sentiment toward tech stocks. Elon Musk, Tesla’s CEO, said the newly launched Cybertruck would take 12 to 18 months to contribute to cash flow, raising concerns about profitability. Furthermore, tensions between Israel and the Palestinian militant group Hamas remain ongoing.

The KOSPI is expected to start down by about 0.3% to 0.7% on the 20th. Kim Seok-hwan, a researcher at Mirae Asset Securities, explained, "The Bank of Korea kept the base rate at 3.5% for the 10th consecutive month since January at the Financial Monetary Committee meeting held the day before," adding, "However, during the same period, the 10-year government bond yield rose from 3.67% to 4.38%." He continued, "Considering the increasing pressure from rising U.S. long-term bond yields, the possibility of further increases cannot be ruled out," and added, "This is expected to burden the domestic stock market and economy."

Han Ji-young, a researcher at Kiwoom Securities, said, "The domestic stock market plunged the day before due to Tesla’s earnings shock, a more hawkish-than-expected Monetary Policy Committee result, and simultaneous selling of futures and spot by foreigners," adding, "Today, despite the restrictive macro environment such as the sharp rise of the U.S. 10-year Treasury yield above 5% and the won-dollar exchange rate breaking through 1,350 won, the upside will be limited, but a technical rebound is expected to be attempted with the 60-week moving average as the lower boundary."

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