[Weekly Market Outlook] KOSPI Taking a Breather... Will It Break the 2500 Level?

[Asia Economy Reporter Son Sun-hee] The KOSPI, which had been on an upward trend since the beginning of the new year, recorded its first weekly decline last week, taking a breather. There are no notable economic indicators or corporate earnings announcements scheduled for this week (February 6?10). However, all market attention is focused on the discussion on the 7th featuring Jerome Powell, Chairman of the U.S. Federal Reserve (Fed). Depending on the message from 'Powell's mouth,' the fate of major global stock markets at a crossroads is expected to be decided. Attention is also on whether the domestic stock market can break out of the box range and surpass the 2500 mark.

According to the Korea Exchange on the 5th, the KOSPI index closed at 2480.40 on the 3rd, down 3.62 points (0.15%) from the previous week. This is the first time the weekly KOSPI index has shown a decline since the start of the new year. The KOSPI index rose 53.57 points (2.40%) in the first week of the new year compared to the year-end closing price (2236.40) last year, then continued its upward trend throughout January with increases of 96.12 points (4.20%), 9.17 points (0.38%), and 88.76 points (3.70%). It appears to be taking a breather in the fifth week, just before recovering the 2500 level.

Jerome Powell, Chairman of the U.S. Federal Reserve
[Photo by Yonhap News]

At the Federal Open Market Committee (FOMC) regular meeting held from January 31 to February 1 (local time), the U.S. benchmark interest rate was raised by 0.25 percentage points in a baby step. This result met market expectations. What drew more attention was the press conference immediately following the rate hike. Chairman Powell mentioned 'disinflation' 12 times during the conference. This was interpreted as signaling that the unprecedentedly aggressive U.S. tightening last year is nearing its end, causing the Nasdaq index to surge more than 3% in a single day.

Along with this, the U.S. Department of Labor announced that the U.S. Employment Cost Index (ECI) for the fourth quarter of last year rose 1.0% compared to the previous quarter. This was below both the market forecast (1.1% increase) and the previous quarter's figure (1.2% increase). The ECI is a wage index paid by employers to workers and is a key indicator the Fed refers to when assessing wage inflation pressures. The slowdown in the ECI is seen as a positive factor for the stock market as it supports the Fed's easing mode.

The stabilization of the exchange rate is also a positive factor for foreign investor demand. On the 3rd, the won-dollar exchange rate closed at 1229.4 won, the lowest level in about nine months since April 18 last year (1229.5 won).

The biggest focus is on the discussion scheduled for the 7th at the Economic Club event in Washington D.C. With Chairman Powell participating, it is expected to provide hints on how the Fed interprets the recent U.S. inflation and employment situation. In particular, depending on whether there is a possibility of a rate cut within the year, the stock market rally could either accelerate or, conversely, come to a sudden halt.

NH Investment & Securities projected the weekly KOSPI fluctuation range to be between 2410 and 2540 points. Researcher Kim Young-hwan of NH Investment & Securities explained, "Chairman Powell stated that the U.S. benchmark interest rate is approaching the terminal rate," adding, "The U.S. employment situation is likely to continue to be a factor sustaining the positive reaction in financial markets after the FOMC." He further added, "The monetary policies of major central banks and expectations for China's turnaround are positive factors for the stock market, increasing the likelihood that the stock index rise period will be extended."