Omicron, After the Shock Comes the 'FOMC'

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hwang Junho] Despite the impact of the COVID-19 variant Omicron, the stock market, which had been steadily rising, is expected to reach a turning point next week due to issues originating from the United States. Investors' calculations have become complicated depending on the results of the U.S. Federal Open Market Committee (FOMC) and the debt ceiling negotiations.

According to the Korea Exchange on the 10th, foreign investors made a net purchase of 2.5074 trillion KRW over seven trading days up to the 9th. They continuously bought stocks since the 30th of last month, when the Omicron impact severely hit the stock market. The KOSPI, which had remained around the 2800 level due to Omicron, rose to 3029.57 thanks to the continuous buying by foreign investors. As research results on Omicron gradually revealed that the risk of severe illness is relatively low, the stock market has been gaining strength.

However, whether this recovery phase will continue is expected to depend on the FOMC results scheduled for the 16th (local time). Opinions are expected to emerge at this FOMC meeting to accelerate the pace of tightening. While this is positive in terms of removing uncertainty about tightening, the tightening itself is expected to be a burden on the stock market.

Kim Younghwan, a researcher at NH Investment & Securities, said, "The early tapering end by the FOMC is already an expected outcome by the market, but if the producer price index announced on the 14th shows a steep rise, concerns about stagflation will increase again." On the other hand, Lee Jaeseon, a researcher at Hana Financial Investment, analyzed, "Although monetary policy meetings of major countries including the U.S. are scheduled, market interest rates have already reflected a tightening tendency. Examining the correlation between the December FOMC meetings held since the U.S. raised interest rates for the first time after the financial crisis in 2015 and the KOSPI returns, the average return in the week before the meeting was 0.80%."

The results of the U.S. debt ceiling negotiations are also expected to affect the stock market. The key issue is whether a bill to raise the debt ceiling can be passed without Republican support before the U.S. Treasury Department's government spending payment ability is exhausted, scheduled for the 15th. Regarding this, Kang Daeseung, a researcher at DB Investment & Securities, said, "Since Mitch McConnell, the Republican Senate Minority Leader, expects support from more than 10 Republican senators, expectations for the bill's passage are high."