[Good Morning Market] Fed Holds Rates, Oil Prices Surge... High Volatility Expected in Domestic Stocks

New York Stock Market Closes Sharply Lower

Iran's Largest Gas Field Attacked, Brent Crude Up 3.8%

Powell: "No Rate Cuts Without Economic Progress"

The U.S. central bank, the Federal Reserve (Fed), has kept its benchmark interest rate unchanged, while news of attacks on energy facilities in the Middle East led to a broad decline in the New York stock market. In particular, hawkish remarks from Fed Chair Jerome Powell dampened risk appetite in the equity markets. The domestic stock market is also expected to start lower, exhibiting high volatility.

Jerome Powell, Chairman of the U.S. Federal Reserve. Photo by Yonhap News

On March 18 (local time), the Dow Jones Industrial Average closed at 46,225.15, down 768.11 points (1.63%) from the previous session. The S&P 500 index ended at 6,624.70, down 91.39 points (1.36%), while the tech-heavy Nasdaq Composite closed at 22,152.42, a decline of 327.11 points (1.46%) from the previous session.

International oil prices surged. This was due to Israel bombing Iran's largest gas field and Iran launching retaliatory attacks on energy facilities in neighboring countries. Israel struck the South Pars, Iran's largest gas field, as well as the natural gas processing plant complex in Asaluyeh on Iran's southwestern coast, which is directly connected to the field. Afterwards, Iran retaliated by launching missile attacks on Qatar's gas cluster facilities, which account for 20% of the world's liquefied natural gas (LNG) supply. The May futures contract for Brent crude, the international oil price benchmark, settled at $107.38 per barrel, up 3.8% from the previous session.

Concerns about U.S. inflation have intensified. The Producer Price Index (PPI) for February, announced by the U.S. Department of Labor's Bureau of Labor Statistics, rose 0.7% from the previous month, significantly surpassing the expert forecast of 0.3%. On a year-on-year basis, the increase was 3.4%, marking the highest level in a year.

Chair Jerome Powell, at the Federal Open Market Committee (FOMC) meeting that day, announced the decision to keep the benchmark interest rate at 3.50–3.75%. In a press conference following the meeting, he stated that after the shocks from tariffs and the COVID-19 pandemic, the economy is now facing an "energy shock of significant scale and duration." He emphasized that unless there is progress in economic performance, there will be no rate cuts.

Yields on U.S. Treasury bonds also rose. The yield on the 10-year U.S. Treasury note climbed by 6 basis points (1bp = 0.01 percentage point) to 4.26%. This is a significant increase from 3.97% before the Iran war. The yield on the 2-year Treasury, which is sensitive to monetary policy, was recorded at 3.77%, up 10 basis points.

Ji Young Han, a researcher at Kiwoom Securities, commented, "The uncertainty of energy-driven inflation has led to the Fed's hawkish outlook, but it is appropriate to consider the possibility that the market could shift back to a more friendly stance if the U.S.-Iran war situation stabilizes and the spike in oil prices subsides." She added, "While the equity market is currently dependent on war-related uncertainties, it is important to note that it has historically followed a pattern of 'initial war-related decline in stock prices, followed by a recovery phase.'"

Han also stated, "Although we are facing a highly volatile environment in the short term, the domestic stock market is likely to maintain its downside resilience and remain on a recovery track." She continued, "From an industry perspective, despite recent consecutive stock price corrections and heightened volatility, leading sectors such as semiconductors have demonstrated relatively strong recovery momentum during rebound phases."

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