[Good Morning Stock Market] Hawkish Fed and Oil Price Pressure... "A Market Sensitive to Negative Factors"

US Stock Market Linked to Oil Price Trends
Market Sensitive to Negative Factors, Expected to Start Lower

Fed Hawkishness Expands, Watch for Sharp Bond Yield Rise
"Stealth Omicron Impact Likely Limited"

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] On the 28th, the KOSPI is expected to start lower. The rise in international oil prices influenced the U.S. stock market last Friday, and discussions of aggressive tightening by the Federal Reserve (Fed) are expected to weigh on the index.

Sangyoung Seo, Researcher at Mirae Asset Securities: “KOSPI expected to start lower”

The U.S. stock market showed a pattern linked to international oil price trends. As the intraday rally in oil prices narrowed, the market trimmed losses and showed stock-specific movements based on individual sector issues. The Dow Jones and S&P 500 rose by 0.44% and 0.51%, respectively, while the Nasdaq fell by 0.16%.

Accordingly, the domestic stock market is expected to start slightly lower. Recently, major central banks including the U.S. Fed, the UK BOE, and the Canada BOC have raised voices for aggressive monetary policies due to high inflation.

Furthermore, the weak performance of Chinese companies in the U.S. stock market has increased the likelihood of sluggishness in the Greater China stock markets, which is also a burden. Although related issues were reflected in the domestic market last Friday, attention should be paid to the fact that the market is more sensitive to negative factors than positive ones. The domestic market is expected to start down about 0.3% on this day.

Kyoungmin Lee, Researcher at Daishin Securities: “Need to monitor bond yields and concerns over Russian default”

Recent movements in bond yields have been unusual. Bond yields have continued to surge following hawkish remarks from Fed Chair Powell and other key Fed officials. The U.S. 10-year Treasury yield rose to 2.47%, and the 2-year Treasury yield reached 2.27%, marking the highest levels since May 2019. Since bond yields have historically led volatility in foreign exchange and stock markets, caution is warranted regarding the expanding volatility in bond yields.

Moreover, if the yield spread between the 10-year and 2-year U.S. Treasuries narrows further, economic anxiety could intensify. Additionally, the Russian default issue is a factor that could trigger short-term anxiety and increase demand for safe-haven assets. Russia’s principal and interest payments on government bonds are scheduled for March 31 and April 4, totaling nearly $2.8 billion, the largest amount of the year and five times the size of the last three interest payments ($570 million). Although this issue is well known, considering recent hopes for easing of the Ukraine-Russia conflict, it remains a variable to keep in mind.

Daejun Kim, Researcher at Korea Investment & Securities: “Concerns over stealth Omicron spread; reopening demand expected to remain robust”

Stealth Omicron is spreading rapidly again in major European countries such as the UK, France, and Germany. Stealth Omicron is a sub-lineage of Omicron named “stealth” because it is difficult to detect by PCR tests used during the Delta variant wave. It is about 30% more transmissible than Omicron, signaling signs of a resurgence in Europe.

The spread of stealth Omicron in major European countries is attributed to the lifting of quarantine guidelines including mask mandates and sluggish booster shot uptake, leading to lowered immunity. However, Korea has never lifted the mask-wearing mandate, and the booster shot vaccination rate is a favorable 63%. Even if the outbreak prolongs, Korea is analyzed to have more leeway in managing fatality and severe case rates compared to European countries.

Considering these factors, reopening demand is expected to remain robust. Stronger social distancing measures than the U.S. have kept reopening consumption from fully recovering to pre-pandemic levels, but there is a strong willingness to spend on outdoor activities and services. Among reopening-related sectors, transportation, hotels, and retail are expected to benefit the most. Transportation and hotels have turned profitable this year, and with the quarantine exemption for overseas arrivals implemented from the 21st, improvements in performance are anticipated in aviation, hotel, and duty-free sectors.