[Good Morning Stock Market] US Stock Market Trapped by War and Interest Rate Uncertainty

[Image source=Yonhap News]

[Asia Economy Reporter Junho Hwang] Following the previous day’s decline in South Korea’s stock market, the U.S. stock market also struggled on the 14th (local time). The market closed lower due to the ongoing Russia-Ukraine conflict, remarks from Federal Reserve officials regarding interest rate hikes, and rising international oil prices. This sentiment is expected to impact the South Korean stock market as well.

The U.S. stock market fell the previous day after Ukrainian President Zelensky announced that an attack was notified for the 16th. However, a senior Ukrainian official dismissed Zelensky’s speech as just a speech, and France, the UK, and the U.S. also eased concerns, reducing the extent of the decline. As a result, the Dow Jones fell by 0.49%, the S&P 500 by 0.38%, and the Nasdaq remained flat at 0.00%.

News that the U.S. might raise interest rates sharply also affected the market. James Bullard, President of the Federal Reserve Bank of St. Louis, continued to advocate for a 100 basis point rate hike in the first half of the year, stating that the Federal Reserve would defend its 2% inflation target. However, on the same day, Mary Daly, President of the Federal Reserve Bank of San Francisco, expressed caution regarding a March rate hike; Thomas Barkin, President of the Federal Reserve Bank of Richmond, mentioned a gradual rate increase while monitoring inflation in the service sector; and Esther George, President of the Federal Reserve Bank of Kansas City, said she was not confident about a 50 basis point hike next month. Consequently, the market rebounded in the latter part of the session, reducing losses.

According to the CME Group’s FedWatch tool on the day, the probability of the Fed raising the benchmark interest rate at the March Federal Open Market Committee (FOMC) meeting rose to 59.8%, up from the previous 56%.

Despite the overall weak market, sectors such as travel, leisure, airlines, and hotels showed gains. However, the energy sector declined due to concerns over reduced refining margins and decreased demand amid rising international oil prices.

These changes in international affairs and financial conditions are expected to affect the domestic stock market as well. The expanding concerns over the Russia-Ukraine invasion, along with rising international oil and grain prices, contribute to inflationary pressures. This acts as a factor dampening overall investor sentiment.

On the previous day at the New York Mercantile Exchange, the March West Texas Intermediate (WTI) crude oil price rose $2.36 (2.5%) to $95.46 per barrel, marking the highest level since September 3, 2014.

Researcher Jaeseon Lee of Hana Financial Investment stated, "At this point, where geopolitical risks remain unresolved, a selective approach based on oil price scenarios is necessary. The consensus for WTI’s first-quarter average is about $90, and any level exceeding this is expected to delay the downward stabilization of inflation."

Researcher Sangyoung Seo of Mirae Asset Securities forecasted, "The market is expected to start lower due to the Ukraine issue, but with the upcoming Germany-Russia summit and the release of the FOMC minutes, attention should be paid to foreign investors’ capital inflows."