[Good Morning Stock Market] Easing Omicron Concerns... Eyes on the Fed

President Biden Strengthens Quarantine Measures but Avoids Lockdown
Dollar Expected to Maintain Weak Uptrend Unless Interest Rate Hike Timing Advances

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Gong Byung-sun] As concerns over the new COVID-19 variant 'Omicron' have eased, the U.S. stock market rebounded. Going forward, market attention is expected to shift from Omicron to the U.S. Federal Reserve (Fed).

On the 2nd (local time), the New York stock market rebounded. At the New York Stock Exchange that day, the Dow Jones Industrial Average closed at 34,639.79, up 1.82% (617.75 points) from the previous trading day. The S&P 500 index closed at 4,577.10, up 1.42% (64.06 points) from the previous session. The tech-heavy Nasdaq closed at 15,381.32, up 0.83% (127.27 points) from the previous trading day.

◆ Seo Sang-young, Researcher at Mirae Asset Securities = With concerns over Omicron significantly easing, it did not have a major impact on the stock market. Additionally, the announcement by British pharmaceutical company GlaxoSmithKline and Vir Biotechnology that their COVID-19 antibody treatment Sotrovimab showed effectiveness against Omicron in preclinical trials positively influenced overall investor sentiment. Pfizer's claim that its vaccine's effectiveness against Omicron has not significantly declined was also a positive factor.

U.S. President Joe Biden emphasized vaccination and booster shots. Furthermore, international passengers are required to undergo COVID-19 testing within 24 hours regardless of vaccination status, and the mask mandate on public transportation has been extended until March 18, next year. Although measures have been strengthened, the absence of additional lockdowns led to gains in travel, leisure, and airline sectors.

(Provided by Hana Financial Investment)

◆ Jeon Gyu-yeon, Researcher at Hana Financial Investment = Fed Chair Jerome Powell maintained a hawkish monetary policy stance for two consecutive days in Congress. This increases the likelihood that the Federal Open Market Committee (FOMC) will accelerate the pace of asset purchase tapering in December. 'Hawkish' refers to a preference for tightening measures such as raising interest rates when there are signs of economic overheating.

The financial market is pricing in about a 70% chance of an interest rate hike starting in June next year. However, despite Powell's hawkish stance, the U.S. dollar index has been hovering around 96 points, showing mixed trends. Concerns over economic slowdown due to Omicron's spread caused U.S. interest rates to fall, and the dollar is reflecting related risks. The safe-haven Japanese yen appreciated about 2% after Omicron emerged as a concern.

The core Personal Consumption Expenditures (PCE) deflator for October, which the Fed uses as a monetary policy benchmark, recorded 4.1% year-over-year. Additionally, weekly jobless claims hit their lowest level in 52 years. These factors support the Fed's stance to control high inflation.

However, international oil prices have fallen to the $60 per barrel range (about 70,620 KRW), and global supply chain disruptions are improving. If inflationary pressures ease in the first half of next year and service sector employment recovers somewhat slowly due to caution over the variant virus, the probability of rate hikes immediately after tapering ends in the first half of next year is low. If the timing of Fed rate hikes is not brought forward, the dollar is likely to maintain a slightly weak trend.

◆ Moon Nam-jung, Researcher at Daishin Securities = It is time for the market's focus to shift from Omicron to the Fed. The impact of Omicron on the stock market is a short-term adjustment factor, assuming there is no halt to 'With Corona' (gradual return to normal life). Except for the Brazilian Gamma variant in November last year, which had almost no impact on the S&P 500, the volatility range during the emergence of the South African Beta in May, the UK Alpha in September, and the Indian Delta in October last year was between -3.8% and -9.6%.

The current correction in the U.S. stock market appears on the surface to be caused by Omicron, but in essence, it is due to the Fed's sharp volatility in monetary policy. Two key indicators that will help gauge the timing of tapering completion and rate hikes are the U.S. employment data and November consumer price index and core consumer price index. Therefore, the market is expected to experience turmoil due to the Fed until the December FOMC.