[Good Morning Stock Market] Confidence in US Economy Rises with 'Interest Rate Hike'... KOSPI Also Expected to Climb

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] The U.S. Federal Reserve (Fed) raised the benchmark interest rate by 0.25 percentage points for the first time in 3 years and 3 months and signaled six additional hikes within the year, yet the U.S. stock market closed higher on the 16th (local time). Since the rate hike had been anticipated, the market was relieved of uncertainty, which stimulated investor sentiment. Positive reactions were seen following Fed Chair Jerome Powell's remarks that the U.S. economy remains strong. The Dow Jones Industrial Average rose 1.55%, the Standard & Poor's (S&P) 500 index increased by 2.24%, and the tech-heavy Nasdaq index closed up 3.77%. On the 17th, the domestic stock market is expected to show an upward trend influenced by the rise in the U.S. market.

◆ Han Ji-young, Kiwoom Securities Researcher = Following the Federal Open Market Committee (FOMC) regular meeting, the Fed raised the benchmark interest rate by 0.25 percentage points as expected by the market. The dot plot projecting future rate outlook indicated an expected rate of 1.9% by the end of this year, implying six additional 0.25 percentage point hikes in the remaining FOMC meetings. It also suggested four hikes next year. Chair Powell also announced the possibility of quantitative tightening (QT). Despite the hawkish FOMC content, the U.S. stock market closed up over 2% due to Powell’s moderate remarks and ceasefire hopes, including the announcement that Ukraine and Russia are preparing a peace plan consisting of 15 articles.

On this day, the domestic stock market is expected to show strength influenced by the U.S. market’s relief rally after the FOMC. Additionally, easing of the Ukraine crisis is expected to strengthen the upward momentum mainly in IT and automobile sectors, such as semiconductors, which had faced adjustment pressure due to concerns over parts supply disruptions. The won-dollar exchange rate, which had experienced overshooting (temporary surge), is currently plunging by more than 12 won offshore, creating a favorable environment in the foreign exchange market for the domestic stock market.

◆ Seo Sang-young, Mirae Asset Securities Researcher = The U.S. stock market started higher on expectations that geopolitical risks between Ukraine and Russia might ease. The Chinese government’s expression of willingness to stimulate the economy was also favorable. After the Fed raised the benchmark interest rate and hinted at quantitative tightening at the FOMC, the market gave back some gains. However, the gains expanded as Chair Powell asserted that the U.S. economy is solid.

The Fed’s announcement of the rate hike, six additional hikes, and quantitative tightening poses a burden on the domestic stock market. Also, the fact that U.S. retail sales in February increased by only 0.3% month-on-month is negative for exports, adding to the burden.

However, considering Chair Powell’s mention of expecting steady growth in the U.S. economy despite Russia’s invasion of Ukraine, and the fact that the hawkish Fed announcements had already been partially priced into the market, stability is expected to return. Concerns that had fueled market declines are showing signs of easing, and the sentiment of uncertainty resolution is becoming more prominent. The domestic stock market is expected to start with about a 2% rise and continue its rebound supported by foreign investors’ demand.