![[Good Morning Stock Market] Will 'Giant Step' Material Be Perceived as Fading... Expecting a Pullback as 'Panic Selling' Calms Down](https://cphoto.asiae.co.kr/listimglink/1/2022061608105615020_1655334656.jpg)
[Asia Economy Reporter Lee Seon-ae] On the 16th, attention is focused on whether the domestic stock market can recover the losses from the previous day as the sell-off phenomenon calms down. The New York stock market rallied in relief, interpreting the unprecedented interest rate hike in 28 years as a factor that can curb inflation. Accordingly, the domestic stock market is expected to find some stability, viewing it as an opportunity for price stability recovery.
On the 15th (local time), the U.S. New York stock market closed higher despite the Federal Reserve's (Fed) 'Giant Step' (a 0.75 percentage point interest rate hike), showing a relief rally. The Dow Jones Industrial Average closed at 36,668.53, up 303.70 points (1.00%) from the previous session. The Standard & Poor's (S&P) 500 index rose 54.51 points (1.46%) to 3,789.99, and the tech-heavy Nasdaq index surged 270.81 points (2.50%) to close at 11,099.15. The S&P 500, which entered a bear market with a decline of more than 20% from the January peak, stopped its five-day losing streak, and the Nasdaq widened its rebound from the previous day.
The New York stock market, which had plunged recently due to news that U.S. inflation had worsened, rose as the Fed raised the benchmark interest rate by 0.75 percentage points as expected at the June Federal Open Market Committee (FOMC) regular meeting held that day, alleviating uncertainty. In particular, after Fed Chair Jerome Powell hinted at a 0.5 or 0.75 percentage point rate hike at the next July FOMC meeting during a press conference but stated, "I do not expect such large moves to become common," major indices simultaneously increased their gains.
The indication of a second consecutive 'Giant Step' was seen as a more hawkish move than expected, but the market seemed relieved by the expectation that such aggressive measures would help curb inflation, which hinders economic growth, and aid in price stability recovery.
Seo Sang-young, Head of Media Content Division, Mirae Asset Securities
On the previous day, the Korean stock market experienced increased volatility overall as U.S. Treasury yields surged amid expectations that the Fed would raise rates by 75 basis points at the FOMC. Despite the release of solid real economy indicators from China during the session, foreign investors continued to sell both spot and futures, leading to a rapid outflow of sell orders amid a supply-demand gap. Particularly, the global recession concerns highlighted by the Fed's policy changes negatively affected foreign demand. As a result, the KOSPI closed down 1.83%, and the KOSDAQ fell 2.93%.
In this context, the rise in the U.S. stock market despite the 75 basis point rate hike is positive for the Korean stock market. Especially, after Fed Chair Jerome Powell expressed confidence in the economy and claimed that the 75 basis point hike was an exceptional event, the U.S. stock market's gains expanded. The related remarks also led to a weaker dollar and a significant drop in Treasury yields, which was positive for the Korean stock market. However, the Fed's indication of an additional 175 basis points of rate hikes this year remains a burden as tightening could still expand. Additionally, the decline in U.S. retail sales compared to the previous month, albeit due to gasoline, is another concern as it could raise worries about a slowdown in Korea's exports to the U.S. Nevertheless, since the foreign sell-off was larger than other countries, a rebound could occur, and the Korean stock market is expected to start with a gain of around 1% and then stabilize. Particularly, tech stocks, which have recently experienced significant declines, are expected to show resilience.
Han Ji-young, Researcher, Kiwoom Securities
On the 15th, the U.S. stock market rose (Dow +1.0%, S&P 500 +1.5%, Nasdaq +2.5%, Russell 2000 +1.4%) despite weak real economy indicators such as May retail sales, supported by relief from reduced policy uncertainty following the 75 basis point rate hike at the June FOMC. The June FOMC implemented a 75 basis point rate hike (Giant Step) and significantly raised the median 2022 rate forecast from 1.875% to 3.375% on the dot plot, also leaving open the possibility of an additional 75 basis point hike at the July FOMC, strengthening a more hawkish stance compared to the previous meeting. However, the stock market had already priced in the possibility of a 75 basis point hike since the U.S. consumer price index release on the 10th through consecutive price adjustments, so the actual hike was perceived as a removal of uncertainty or a neutral factor.
Of course, since the second half of last year, there have been many cases where the stock market's reaction on the FOMC day differed from the following day, so there is a possibility of increased volatility as the market reinterprets the FOMC results over the next one to two trading days. Furthermore, as Fed Chair Jerome Powell revealed that inflation-related data (consumer prices, University of Michigan inflation expectations, etc.) released just before the FOMC unusually influenced this rate hike decision, it appears that the Fed is now reacting more laggingly to inflation data than ever before.
In line with this, the weak May retail sales (-0.3% MoM, expected +0.1%) and the decline in inflation expectations after the June FOMC suggest that demand easing and Fed rate hikes are alleviating future price pressures, indicating that the stock market environment will remain at a neutral or better level for the time being.
The direction of oil prices, which most significantly affect future inflation expectations, has become important, and the existing forecast that a full relief rally will emerge only after digesting the June consumer price index (expected to confirm peak-out) and the July FOMC event (expected 75 basis point hike) is maintained. However, with no major macro events related to inflation expected for the remainder of June and valuations becoming more attractive, major global stock markets are expected to enter a price recovery mode for the time being.
Considering this, the domestic stock market, which hit a new yearly low due to the sell-off on the previous trading day, is expected to rebound today, supported by the fading impact of the Fed's June Giant Step and the sharp drop in the won/dollar exchange rate (currently down more than 10 won offshore). Although growth stocks that had large declines are expected to lead the rebound today, the surprise positive results from China's major real economy indicators released yesterday confirm that the economic momentum improvement from China's stimulus policies remains effective, which is expected to have a favorable impact on the stock prices of sectors related to exports to China today.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
