[Good Morning Stock Market] All Three Major US Indexes Close at Record Highs... But Market Focus Remains on 'Interest Rates'

Growing Inflation Concerns... Focus on Early Interest Rate Hike Possibility
Oil Prices Rise Ahead of OPEC+ Meeting

[Image source=AP Yonhap News]

[Asia Economy Reporter Gong Byung-sun] Although the three major U.S. indices closed at all-time highs, the financial markets showed volatility ahead of the Federal Open Market Committee (FOMC) meeting. As concerns over inflation grew, the market focused on the possibility of an early interest rate hike.

On the 29th of last month (local time), all three major indices closed at record highs. On that day at the New York Stock Exchange, the Dow Jones Industrial Average closed at 35,819.56, up 0.25% (89.08 points) from the previous trading day. The S&P 500 closed at 4,605.38, up 0.19% (8.96 points) from the previous session. The tech-heavy Nasdaq closed at 15,498.39, up 0.33% (50.27 points) from the previous trading day.

◆ Seo Sang-young, Researcher at Mirae Asset Securities = Ahead of the U.S. Federal Open Market Committee (FOMC) meeting scheduled for the 2nd and 3rd, the persistence of high inflation levels led to an expansion in the strength of the U.S. dollar. However, U.S. Treasury yields showed a mixed pattern, remaining mostly flat due to preemptive pricing. Accordingly, the U.S. stock market reacted sensitively to positive news, especially in technology and pharmaceutical stocks.

It is important to note that not only the U.S. Federal Reserve (Fed) but also central banks worldwide are united in their stance on liquidity reduction. This is because asset prices have surged sharply due to large-scale liquidity injections.

In particular, although the European Central Bank (ECB) still maintains liquidity expansion policies, the consumer price index rose 4.1% year-on-year, raising the possibility of an ECB interest rate hike. As the likelihood of liquidity reduction by central banks increases, most financial markets?including stocks, bonds, foreign exchange, and commodity futures?are showing a tendency toward increased volatility recently.

(Provided by Daishin Securities)

◆ Gong Dong-rak, Researcher at Daishin Securities = U.S. retail sales in September rose compared to the previous month, exceeding market expectations that had anticipated a decline. Additionally, the number of weekly unemployment insurance claims announced in the third week of last month reached the lowest level since the outbreak of COVID-19. With conditions for interest rate hikes being met, inflation concerns persist, and inflation-linked bonds showed strength.

Fed Chair Jerome Powell forecasted that the inflationary pressure caused by supply chain disruptions would continue until next year. This indicates that the Fed’s view on inflation has tilted toward uncertainty. However, Chair Powell reiterated that at this point, asset purchase tapering?not interest rate hikes?is necessary.

Not only in the U.S. but also globally, short-term interest rates largely reflect expectations of rate hikes. While the Fed consistently signals an attempt to separate tapering from rate hikes, the market is reacting to the rise in short-term rates. If the Fed maintains a cautious stance on rate hikes at the November FOMC, the recent sharp flattening of the bond yield curve is expected to partially reverse. Nevertheless, inflation concerns remain significant enough to prevent a break in the medium- to long-term upward trend in rates, so market vigilance regarding the possibility of an early benchmark rate hike will continue.

(Provided by Kiwoom Securities)

◆ Kim Yumi, Researcher at Kiwoom Securities = International oil prices rose ahead of the OPEC and non-OPEC oil-producing countries alliance OPEC Plus (OPEC+) meeting scheduled for the 4th. On the 29th of last month, West Texas Intermediate (WTI) crude oil closed at $83.57, up 0.92% from the previous day.

Attention is focused on whether OPEC+ will discuss increasing production by 600,000 to 1 million barrels per day at this meeting. However, there are also forecasts that the increase may remain at the existing 400,000 barrels per day in December, continuing uncertainty over supply and demand conditions.