[Good Morning Market] Despite Inflation Peak-Out, 'FOMC & Options Expiry' Variables

On the 12th, as the KOSPI index started slightly lower due to selling pressure from foreigners and institutions, dealers were working in the dealing room of Hana Bank in Euljiro, Seoul. Photo by Moon Honam munonam@

[Asia Economy Reporter Junho Hwang] As the U.S. stock market closed higher, buoyed by expectations of an inflation peak-out and the corporate earnings season, there are forecasts that this positive sentiment could extend to the domestic stock market. However, the upcoming Bank of Korea's Monetary Policy Committee meeting on the 14th, where a decision on interest rate hikes is expected, along with the fact that the day is an options expiration date, are anticipated to act as variables affecting the stock market.

On the 13th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,564.59, up 344.23 points (1.01%) from the previous session. The S&P 500, centered on large-cap stocks, rose 49.14 points (1.12%) to 4,446.59, and the tech-heavy Nasdaq index closed at 13,643.59, up 272.02 points (2.03%). The U.S. stock market rose as inflation concerns dissipated following the consumer price index announcement the previous day, and optimism about corporate earnings increased.

Kim Ki-myeong, a researcher at Korea Investment & Securities, analyzed, "The U.S. bond market has turned to lower yields based on the slowing core CPI increase compared to the previous month, raising hopes that March could mark the inflation peak." On this day, the yield on the U.S. 10-year Treasury note fell by 2.3 basis points to 2.699%. He added, "Even if inflation has passed its peak, it is not expected to decline rapidly and will likely remain significantly above the 2% inflation target for a considerable period. The Federal Reserve's efforts to break this vicious cycle will continue, and it is expected that aggressive rate hikes and quantitative tightening (QT) will not be slowed but will proceed according to the planned pace of monetary policy."

On the 12th, as the KOSPI index started slightly lower due to selling pressure from foreigners and institutions, a dealer is watching news related to the Ukraine situation in the Hana Bank dealing room in Euljiro, Seoul. Photo by Moon Honam munonam@

Among individual stocks, Delta Air Lines (6.21%) reported a smaller-than-expected loss and mentioned the possibility of turning a profit in Q2 despite cost increases due to inflation, which boosted reopening-related stocks. Stocks related to reopening such as airlines, cruises, travel, hotels, and casinos surged. Nvidia (3.25%) also rose as investment ratings from various research centers were upgraded due to strong outlooks for gaming and data centers, maintaining high earnings expectations. Cloud-related companies such as AMD (2.78%), Microsoft (1.97%), Amazon (3.15%), Snowflake (1.65%), and Fastly (3.98%) also showed strength. Tesla (3.59%) rose on rumors of acquiring Lithium Copper (+25.00%).

This positive sentiment in the U.S. stock market is expected to continue in the Korean stock market. Seo Sang-young, a researcher at Mirae Asset Securities, stated, "The rise in the U.S. stock market despite high inflation levels, driven by optimism about the earnings season, will positively influence investor sentiment in the Korean stock market. In particular, the surge in reopening-related stocks influenced by strong expected earnings in tech stocks and Delta Air Lines will also impact the strength of related domestic stocks."

However, the Monetary Policy Committee meeting and the options expiration date on the same day are expected to act as variables influencing the market direction. Han Ji-young, a researcher at Kiwoom Securities, said, "These two factors could increase intraday volatility due to supply and demand fluctuations," adding, "Consensus has formed favoring a rate freeze at the Monetary Policy Committee meeting, and it is important to note that the supply-demand shock tends to be less severe on options expiration days compared to simultaneous futures and options expiration days."