[MarketING] Cheers for US FOMC... KOSPI Recovers to 2470 Level

KOSDAQ Surpasses 760 Level
Higher Valuation Poses Burden

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] The market is cheering following the February meeting of the U.S. Federal Open Market Committee (FOMC). As expected, a 0.25 percentage point interest rate hike was decided, and the possibility of changes in monetary policy was also hinted at, which helped alleviate some uncertainty. However, valuation concerns due to the rise since last month remain a cautionary factor.

KOSPI Recovers to 2470 Level on FOMC Baby Step

As of 10:10 a.m. on the 2nd, the KOSPI was at 2,472.92, up 23.12 points (0.94%) from the previous day. The KOSDAQ rose 10.11 points (1.35%) to 761.07. The KOSPI recovered the 2470 level, and the KOSDAQ regained the 760 level.

This strength is attributed to the FOMC’s baby step decision (a 0.25 percentage point increase in the benchmark interest rate) in February, which was seen as a critical moment for the stock market, and to the less hawkish remarks by Jerome Powell, Chair of the U.S. Federal Reserve (Fed). The New York stock market also closed higher, relieved by the FOMC results and Powell’s comments. The Dow Jones Industrial Average rose 0.02%, the S&P 500 increased 1.05%, and the Nasdaq climbed 2.0%. The yields on the 2-year and 10-year U.S. Treasury bonds closed lower at 4.1% and 3.41%, respectively, compared to the previous day, and the dollar index fell below 101 points for the first time since April last year.

Lee Kyungmin, a researcher at Daishin Securities, said, "The market had already fully anticipated the 0.25 percentage point rate hike at the February FOMC, so its impact on the global financial market was limited. However, the key was the wording of the statement and Powell’s stance." He analyzed, "Concerns about over-tightening, the start of disinflation, and hints at possible changes in monetary policy heated up market sentiment."

Han Jiyoung, a researcher at Kiwoom Securities, said, "Although the FOMC emphasized that there would be no rate cuts until inflation is fully controlled and showed hawkish tones throughout the remarks and statement, the difference this time was the mention of disinflation beginning in terms of commodity prices." She explained, "This was the first time since last year’s tightening cycle that the Fed used the term disinflation, acknowledging that price pressures, especially on commodities, are easing due to demand contraction caused by tightening." The combination of slowing from a 0.5 percentage point hike to a 0.25 percentage point hike, the mention of disinflation, and weak economic indicators such as the January Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) led market participants to bet that "the end of tightening is near and rate cuts within the year are possible."

Market Overcomes Hurdle, Now Eyes Economic Indicators

Having smoothly passed the critical February FOMC, the market is now expected to focus on economic indicators.

Lee Jongbin, a researcher at Meritz Securities, said, "This month, we expected a tug-of-war between the Fed and the market over inflation and economic outlook, key European inflation data, resolution of economic uncertainties, potential changes in European Central Bank (ECB) policy, and the sustainability of China’s goods consumption recovery. Among these, the monetary policy tug-of-war seems somewhat resolved." He added, "Now it’s time for the data to show direction, and the January employment report needs to reconfirm the trend more than economic indicators."

Lee Kyungmin said, "The January U.S. employment report and ISM services index results this weekend are important." He explained, "The ISM services index sharply dropped in December last year, signaling a contraction phase. If it remains below 50 in January, employment conditions are likely to worsen with a time lag." He added, "If both the services sector and employment weaken, anxiety about the U.S. and global economies will inevitably intensify."

Han Jiyoung said, "Both the Fed and market participants will need to continue relying on indicators and data for their responses." She noted, "The key will be whether the January Consumer Price Index (CPI), scheduled for release on the 14th, strengthens the outlook for disinflation."

Regarding future market strategy, it is advised to respond by realizing profits rather than aggressively buying. One researcher said, "From a macro perspective, an environment neutral or better for the stock market will be created." However, "In terms of stock prices, short-term valuation pressures are rising due to the recent consecutive rallies, so rather than aggressively riding the upward momentum, it is appropriate to realize some profits."