[Good Morning Stock Market] "Investor Sentiment Declines Due to Tapering Concerns... Need to Check Chinese Economic Indicators"

Started Higher on CPI Slowdown but Turned Down
Growing Perception of Possible Tapering Within the Year

Domestic Stock Market Should Watch China's Real Economy Data Release

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] Despite a slight slowdown in the U.S. Consumer Price Index (CPI) for August, concerns over tapering (asset purchase reduction) were more heavily reflected, resulting in a slight decline. Securities experts expect the domestic stock market to start lower due to tapering concerns and then determine its direction based on China's economic data releases.

Youngjin Ahn, SK Securities Researcher: “U.S. CPI release is not at a level to delay tapering”

The U.S. August CPI rose 0.3% month-over-month, lower than the market expectation of 0.4%. This is the smallest increase since January. The core CPI, excluding food and energy, also rose 0.1% month-over-month, marking the smallest increase in six months. This is analyzed as reflecting the negative impact of the Delta variant, similar in nature to the employment shock in August.

Immediately after this result was announced, the dollar declined because the CPI is perceived as an indicator symbolizing the Federal Reserve's (Fed) monetary policy normalization, and the failure to meet expectations was interpreted as hope for a delay in monetary policy normalization.

However, this result is not seen as sufficient to change the expectation that tapering will be formalized at the September FOMC and begin in November, the next meeting schedule. It is neither an interest rate hike nor a shortfall enough to delay tapering. The impact of the Delta variant, which has already been sufficiently exposed to the economy and markets, is considered to have been temporarily reflected negatively, and even if the growth rate slows down, it is expected to remain a meaningful inflationary pressure.

Based on the Fed's monetary policy strategy of Average Inflation Targeting (AIT), the trend supports gradual normalization, even if not rapid. The average 2% inflation target, without specifying a period, is estimated to have reached a cumulative 3.8% by August this year and is expected to expand to over 4% by year-end, which would more than compensate for the shortfall of the past two years.

Sangyoung Seo, Mirae Asset Securities Researcher: “Direction will be determined based on China’s economic data releases”

Despite some stabilization in the consumer price index, the domestic stock market is expected to see weakened investor sentiment due to the still high year-over-year levels and ongoing tapering issues in the U.S. Furthermore, the decline due to disappointing selling pressure from the Apple event and the spread of safe-haven asset preference in commodity and bond markets are also expected to negatively affect the index. Considering these factors, the domestic stock market is forecasted to start down about 0.5%.

Additionally, attention should be paid to China’s real economy indicators such as retail sales, industrial production, and fixed asset investment, which will be announced at 11 a.m. that day. Most are expected to show month-over-month declines amid growing concerns about a global economic slowdown. If these indicators fall short of expectations, concerns about economic slowdown will spread further, increasing the likelihood of selling pressure. The domestic stock market is expected to start lower and then determine its direction based on the results of China’s real economy data.