[Good Morning Market] US Quantitative Tightening vs. Samsung Electronics 1Q Earnings

US Stock Market Closes Lower Amid Rising Possibility of Quantitative Tightening
Impact on Domestic Market as Samsung Electronics Earnings Announcement Draws Attention

On the 17th, a dealer at the Hana Bank dealing room in Euljiro, Seoul, is watching news about the 0.25%p increase in the US Federal Reserve's benchmark interest rate. Photo by Moon Honam munonam@

[Asia Economy Reporter Hwang Junho] Concerns over inflation have increased, leading to a decline in the U.S. stock market. As the possibility of aggressive monetary policy by the Federal Reserve (Fed), which sets the direction of U.S. monetary policy, has risen, preference for safe assets has increased.

On the same day, similar concerns are likely to put pressure on the domestic stock market. However, Samsung Electronics is scheduled to announce its first-quarter earnings for this year, and the results are expected to exceed market expectations, raising hopes for a rebound buying spree.

U.S. Stock Market Closes Lower Amid Inflation War Impact

[Image source=Yonhap News]

On the 6th (local time), U.S. Treasury Secretary Janet Yellen expressed concerns about inflation caused by the Russia-Ukraine war during a congressional hearing. The minutes of the Federal Open Market Committee (FOMC) regular meeting released on the same day contained content that increased the likelihood of starting quantitative tightening (balance sheet reduction) within a limit of $95 billion per month (approximately 115.7 trillion KRW). Balance sheet reduction is a method of letting bonds that mature expire instead of reinvesting them. By stopping reinvestment, it means reducing assets on the balance sheet.

In particular, at the March FOMC, most participants agreed to reduce the Fed's holdings by $60 billion in Treasury bonds and $35 billion in mortgage-backed securities (MBS) each month.

Accordingly, the Dow Jones Industrial Average closed at 34,496.51, down 144.67 points (0.42%). The tech-heavy Nasdaq index ended the day at 13,888.82, down 315.35 points (2.22%) from the previous session. The large-cap S&P 500 index finished at 4,481.15, down 43.97 points (0.97%).

As Fed officials' hawkish views strengthened, the U.S. 10-year Treasury yield soared that day. Lee Ming-geun, a researcher at Cape Securities, said, "With the increased possibility of aggressive tightening by the Fed, the U.S. 10-year Treasury yield rose sharply, resolving the inversion between short- and long-term yields for now," adding, "The yield spread widened to 10 basis points that day." Recently, the U.S. Treasury yield curve had inverted as investors worried about economic slowdown after the economic peak.

Samsung Electronics' Earnings Announcement... Will It Lead to Rebound Buying?

On the 17th, the KOSPI and the KRW-USD exchange rate were displayed on the electronic board in the dealing room of Hana Bank in Euljiro, Seoul. The U.S. Federal Reserve raised the benchmark interest rate by 0.25 percentage points for the first time in 3 years and 3 months. Photo by Moon Honam munonam@

Seo Sang-young, a researcher at Mirae Asset Securities, said, "The Korean stock market fell the previous day as the possibility of aggressive monetary policy by the Fed was highlighted," and added, "The Fed's inflation burden will continue to pressure the domestic stock market today." However, he noted, "Since concerns about quantitative tightening have been significant in the market, it is likely that this has already been priced into the stock prices, and given that Samsung Electronics, the leader of the KOSPI, is expected to post solid first-quarter earnings this year, the market is expected to see rebound buying after a decline at the start of the day."

Lee Kyung-min, a researcher at Daishin Securities, said, "The minutes released today were at the level the market had feared," and added, "Quantitative tightening is not likely to be seen as a shock factor." He further analyzed, "The Fed has signaled a 50 basis point rate hike in May, which is an uncertainty factor in the short term, but in the long term, it could be positive as it reflects a preemptive move for a high-intensity rate hike."