[Good Morning Stock Market] Inflation Fear and Anxiety... Attempting a Rebound Despite Heightened Caution

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] Market participants remain uneasy about whether the recent surge in inflation will become a sustained trend. However, remarks from U.S. Federal Reserve (Fed) officials aimed at calming the market continue. Since the likelihood of a persistent inflation surge is low, betting on a trend of rising inflation is considered premature. Accordingly, the domestic stock market is expected to maintain a cautious stance while attempting a rebound.

◆ New York Stock Market Shaken by Inflation Fears = The New York stock market experienced volatility overnight. On the 11th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed down 473.66 points (1.36%) at 34,269.16. The Standard & Poor's (S&P) 500 index fell 36.33 points (0.87%) to 4,152.10, and the Nasdaq index closed down 12.43 points (0.09%) at 13,389.43.

Investors were concerned that improving economic indicators from Europe, China, and other parts of the world could accelerate inflation. Some investors worried that this inflation rise might trigger an early tightening by the Fed. Reflecting these inflation concerns, the Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's "fear gauge," rose to 23.73, marking its highest level since March 10. The U.S. 10-year Treasury yield also surpassed 1.62% intraday.

Seo Sang-young, a researcher at Mirae Asset Securities, said, "Industrials, consumer goods, and financial stocks, which had been strong on expectations of economic normalization, showed weakness. Given the increasing inflationary pressures, it is necessary to closely monitor whether selling pressure on related companies continues."

◆ Han Ji-young, Kiwoom Securities Researcher = On the 11th, the Korean stock market opened lower due to the shock from the sharp decline in U.S. tech stocks the previous day. By mid-session, both the KOSPI and KOSDAQ indices had fallen nearly 2%. However, amid perceptions that the sharp drop was excessive and supported by export news for May (as of the 10th), the market began to rebound after mid-session, closing with reduced losses (KOSPI -1.2%, KOSDAQ -1.4%).

By sector, all sectors showed weakness, including electrical and electronics (-2.0%) affected by the sharp drop in the Philadelphia Semiconductor Index, as well as services (-1.8%), manufacturing (-1.5%), and paper & wood (-1.5%). Additionally, foreigners and institutions both engaged in net selling, with 2.3 trillion KRW and 1.4 trillion KRW respectively, marking the largest net sales by these supply-demand players since February, intensifying downward pressure from the supply-demand side.

The Korean stock market is expected to attempt a rebound as buying interest emerges, particularly in large-cap stocks including semiconductors, due to perceptions of excessive price declines. Of course, profit-taking desires remain at the current index levels, and caution surrounding the U.S. April consumer price index results could be a burden. However, the rebound in U.S. tech stocks and the Philadelphia Semiconductor Index the previous day, along with a weaker dollar, are expected to have a positive impact on the domestic market. Furthermore, most Fed officials view the inflation surge as temporary and have expressed their intention not to normalize policy prematurely, which is also expected to help improve market sentiment.