[Good Morning Stock Market] Global Markets Waver Ahead of US FOMC... Growing Earnings Pressure

All Three Major New York Stock Indexes Plunge... Netflix Drops 21.79%
Federal Funds Futures and Oil Prices Turn Lower... Fundamentals Fall Short of Expectations
Market Volatility Expected to Ease Slightly After FOMC

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] Global stock markets are shaking ahead of the January Federal Open Market Committee (FOMC) meeting starting this week. Corporate earnings pressures are increasing, and the spread of COVID-19 remains uncontrolled, but volatility in the stock market is expected to ease somewhat in the short term once the FOMC concludes.

On the 21st (local time), New York stocks all plunged. On that day at the New York Stock Exchange, the Dow Jones Industrial Average closed at 34,265.37, down 1.30% (450.02 points) from the previous trading day. The S&P 500 index closed at 4,397.94, down 1.89% (84.79 points) from the previous session. The tech-heavy Nasdaq closed at 13,768.92, down 2.72% (385.10 points) from the previous trading day.

◆ Seo Sang-young, researcher at Mirae Asset Securities = Selling pressure is emerging mainly in stocks that surged after the COVID-19 pandemic. Netflix plunged 21.79% after significantly lowering its subscriber forecast for Q1 this year despite reporting earnings in line with market expectations. Amazon, Disney, and Roku also fell 5.95%, 6.94%, and 9.10%, respectively. This is interpreted as highlighting the possibility that earnings growth may slow down as economic normalization becomes more likely. This is causing concerns about the earnings season.

Meanwhile, after the Russian central bank submitted a report calling for a complete ban on cryptocurrencies such as Bitcoin, the global cryptocurrency market plunged as trading volumes decreased due to regulations in various countries. As a result, cryptocurrency-related stocks such as Coinbase, MicroStrategy, Galaxy Digital, and Block fell 13.38%, 17.84%, 17.25%, and 7.43%, respectively.

On the other hand, on the 21st, U.S. Secretary of State Tony Blinken and Russian Foreign Minister Sergey Lavrov held talks in Geneva, Switzerland. The market expected that solutions to ease tensions related to Ukraine would be discussed there. However, both parties said, "We will not resolve this issue today," which was a burden. In particular, Minister Lavrov demanded a promise not to recognize Ukraine's NATO (North Atlantic Treaty Organization) membership. Of course, both parties claimed they would continue dialogue and mentioned their commitment to peacefully resolving differences, so it is necessary to watch the situation over time.

(Provided by Daishin Securities)

◆ Lee Kyung-min, researcher at Daishin Securities = Until mid-last week, the main variable in the global financial market was monetary policy. The Ukraine crisis and Middle East geopolitical risks increased upward pressure on oil prices, which led to sustained and expanded inflationary pressures, resulting in monetary policy burdens and rising interest rates.

From midweek, the variables that had troubled the global financial market since early this year showed signs of easing. Federal funds futures and bond yields reversed downward in the latter half of the week, and the sharp rise in oil prices also showed signs of calming. Nevertheless, global stock markets all widened their losses.

Despite falling federal funds futures and bond yields and a reversal in oil prices, the stock market plunged further, which is interpreted as due to fundamentals. U.S. initial jobless claims recorded 286,000, higher than the expected 220,000. If economic anxiety intensifies going forward, risk asset avoidance and safe-haven asset preference may strengthen. A short-term technical rebound is possible, but rather than being complacent, caution against a secondary correction phase is necessary, and more effort should be made in risk management.

◆ Chae Hyun-gi, researcher at Cape Investment & Securities = The fundamental cause of last week's stock market decline is concerns that the U.S. Federal Reserve (Fed) may implement a more hawkish tightening policy than expected, with 6 to 7 rate hikes per year, to respond to inflation. It is judged that stock market volatility will ease after the January FOMC meeting.

The economic situation is uncertain for the Fed to carry out 6 to 7 rate hikes per year. Some economic indicators, such as U.S. retail sales in December, showed a slight slowdown, and COVID-19 is resurging in the U.S., causing ongoing supply chain disruptions. If rapid rate hikes trigger a U.S. economic recession, the Fed's tightening policy intensity will inevitably ease, as in 2019.

Moreover, since the current cause of inflation is supply, the effect of tightening monetary policy that suppresses demand is limited. Simply raising interest rates or implementing quantitative tightening cannot prevent price increases in products and raw materials such as oil caused by supply disruptions. Therefore, it is judged that the Fed will not implement excessive tightening monetary policy to curb inflation.