[Good Morning Market] Inflation Concerns and Cryptocurrency Plunge... A 'Burden' on the Domestic Stock Market

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] On the 12th (local time), the U.S. stock market showed mixed trends amid increased risk aversion due to the sharp decline in cryptocurrencies and ongoing inflation concerns. The Dow Jones Industrial Average fell for the sixth consecutive trading day, and the S&P 500 hit a new low for the year. Only the Nasdaq index closed with a slight rebound in the final moments.

The Dow Jones closed at 31,730.30, down 103.81 points (0.33%) from the previous session. The S&P 500 ended at 3,930.08, down 5.10 points (0.13%). The tech-heavy Nasdaq index rose 6.73 points (0.06%) to 11,370.96.

Additionally, the U.S. Producer Price Index (PPI) for April recorded an 11% increase year-over-year, maintaining a double-digit high figure following last month's 11.5%, spreading further inflation concerns. On a seasonally adjusted basis, the PPI rose 0.5% month-over-month, down from the previous month's 1.6% increase. The April core PPI, excluding food, energy, and trade, rose 0.6% month-over-month, matching market expectations. Year-over-year, the core PPI increased by 6.9%, slowing from the revised 7.1% rise in the previous month.

Concerns have emerged in the U.S. stock market that high inflation could lead to weakened consumer spending and a potential recession. The sharp decline in cryptocurrencies is expected to continue weighing on the domestic stock market on the 13th, following the previous day.

◆ Seojung-hoon, Researcher at Samsung Securities = The New York stock market closed mixed amid ongoing concerns over prolonged high inflation. The April PPI release confirmed persistent inflationary pressures. However, after significant volatility early in the session, the three major indices saw a substantial recovery in losses as bargain buying entered about an hour before the close. The Nasdaq notably reversed to close higher.

The April PPI rose 0.5% month-over-month on a seasonally adjusted basis, in line with expectations. However, year-over-year, it increased 11.0%, exceeding the forecast of 10.7%. The core PPI rose 8.8% year-over-year, slightly below the expected 8.9%. While some signs of inflation peaking have been observed, the prevailing view is that it is still too early to be confident.

Considering macroeconomic uncertainties, market volatility is expected to continue for the time being. However, if a short-term rebound phase emerges, it is advisable to secure some capacity for response by partially liquidating holdings.

◆ Seo Sang-young, Researcher at Mirae Asset Securities = The U.S. stock market started lower due to increased volatility in the cryptocurrency market, continuing from the previous day. However, a rebound buying wave emerged following recent declines, leading to some gains.

The trend in inflation appears to be stabilizing, as seen in the slowdown of the rise in the U.S. April core PPI. However, the market's focus has shifted to concerns over consumer spending slowdown and recession risks caused by high inflation levels, increasing preference for safe-haven assets and heightening worries.

First, the sharp drop in stablecoins?cryptocurrencies pegged to fiat currencies?raised questions about their reliability, prompting the U.S. Congress to call for regulation. Additionally, Coinbase, the largest U.S. cryptocurrency exchange, reported declines in active users and trading volume, which likely contributed to increased volatility. The price drop of the flagship cryptocurrency Bitcoin led to sharp declines in related companies, further driving the stock market down on this day as well as the previous day.

Moreover, Apple continued its decline, falling 2.69% following a 5.2% plunge the previous day. Foxconn, a parts supplier, highlighted concerns over demand slowdown for electronic products and supply chain disruptions due to China's economic lockdowns, raising worries about Apple's future performance.

The U.S. stock market's decline due to consumption slowdown and recession concerns amid high inflation is expected to weigh on the domestic stock market. Increased cryptocurrency volatility also dampens investor sentiment.

However, the late-session rebound buying in the U.S. market that reduced losses is a positive sign. Also, although Apple's decline continues, it was largely priced in the market the previous day, which is favorable. Overall, much of the global stock market decline has been reflected, raising expectations for an oversold rebound and increasing the likelihood of a domestic market recovery. Considering this, the domestic market is expected to start flat and rebound due to strong bargain buying sentiment.