[Good Morning Stock Market] "US February Inflation Higher Than Expected... KOSPI to Face Downward Pressure"

[Asia Economy Reporter Hwang Yoon-joo] On the 10th (local time), the US stock market declined due to disappointment over Ukraine-Russia negotiations and expanding inflationary pressures in the US. Ukrainian Foreign Minister Kuleba mentioned that there was "no progress" in the high-level Ukraine-Russia talks held in Turkey, which acted as a burden factor in the early trading session. The increased inflationary pressure also weighed on the stock market. The Dow Jones Industrial Average closed down 0.43%, the Standard & Poor's (S&P) 500 index fell 0.43%, and the Nasdaq dropped 0.95%. The Nasdaq index saw a relatively larger decline as growth stocks led the downturn.

Han Ji-young, Kiwoom Securities Analyst: "Inflation Uncertainty Reemerges... Korean Stock Market to Face Downward Pressure"

[Image source=Yonhap News]

Inflationary burdens have resurfaced. The US Consumer Price Index (CPI) for February rose 7.9% year-on-year (expected +7.9%, previous month +7.5%), meeting market expectations but still higher than January's 7.5%. The core CPI, which excludes volatile energy and food prices, recorded 6.4%, matching forecasts and further stimulating the market. While the outlook for a peak in US inflation in the first half of the year remains valid, uncertainty persists as the annual inflation trajectory could vary depending on the duration of the sharp rise in energy and agricultural prices following the Ukraine crisis. The European Central Bank (ECB) also added pressure by advancing the end of its asset purchase program to the third quarter of this year, earlier than market expectations. Ultimately, the Ukraine crisis is judged to be an unexpected variable that has intensified inflation uncertainty and concerns over prolonged supply shortages for central banks and market participants.

Today, the domestic stock market is expected to face downward pressure due to renewed inflation uncertainty and caution over the prolonged Ukraine crisis. After the US market closed, North Korea's launch of a new ICBM missile and the US government's sanctions on North Korea have raised geopolitical risks domestically. However, given that past Korean Peninsula risks had limited impact on the stock market, a similar pattern is expected this time. Only some North Korea-related thematic stocks and defense stocks are expected to see increased price volatility. Since the Ukraine crisis remains central to the market, index movements may fluctuate sharply depending on related news flow, potentially triggering selling pressure. Nevertheless, as the domestic stock market has already entered an oversold territory, the existing view to avoid selling responses is maintained.

Na Jung-hwan, Cape Securities Analyst: "Maintaining a Conservative View on the Domestic Stock Market"

Although the US has banned imports of Russian energy raw materials (crude oil, natural gas, coal), West Texas Intermediate (WTI) crude oil prices fell to the $100 per barrel range. The decline in prices of some raw materials such as wheat, zinc, and palladium has calmed the rise in commodity prices. The US 10-year Treasury yield rose again, reaching the 2% range. It is judged that the financial market is adapting to the Russia-Ukraine geopolitical risk.

However, inflation concerns, which had eased due to the previous day's oil price drop, may resurface. This is because the fourth round of talks between Russia and Ukraine ended in failure. Also, the US February CPI exceeded consensus, potentially reigniting inflation worries that had been alleviated by the oil price decline. Although there is a possibility that commodity prices have peaked, unexpected Ukraine-related issues could still push commodity prices higher. Therefore, the domestic stock market today will continue to maintain a conservative view.