[MarketING] Eyes on Powell's Words

KOSPI Shows Limited Fluctuations Ahead of Powell's Speech
Box Range Market Expected for the Time Being

On the 7th, KOSPI index started the session at 2,440.63, up 0.1% from the previous day, as dealers in the dealing room of the Foreign Exchange Bank in Jung-gu, Seoul, were busy moving. Photo by Dongju Yoon doso6@

[Asia Economy Reporter Song Hwajeong] The KOSPI opened with a slight upward trend. Ahead of the speech by Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), a cautious market is expected to unfold. For the time being, the market is forecasted to move within a box range with the 2500 level as the upper limit.

Limited Fluctuations Ahead of Powell's Speech

As of 10:15 a.m. on the 7th, the KOSPI was at 2447.24, up 9.05 points (0.37%) from the previous day. The KOSDAQ rose 8.62 points (1.13%) to 769.95.

Due to the shock from the U.S. January employment data surprise, the KOSPI had fallen to the 2430 level the previous day, but it is expected to show limited fluctuations ahead of Chairman Powell's speech today. Kim Seokhwan, a researcher at Mirae Asset Securities, said, "The strong U.S. employment data has caused the won-dollar exchange rate to rise for two consecutive days, increasing foreigners' desire to realize profits. However, since the KOSPI fell more than 1.7% the previous day, some of this was already priced in, so it is unlikely to see a large drop like yesterday."

A cautious market is expected ahead of Powell's speech. Chairman Powell will participate in a discussion at the Economic Club in Washington, D.C. on the 7th (local time). The market is likely to seek confirmation of the impact of the January employment surprise and the future direction of monetary policy through Powell's remarks.

Han Jiyoung, a researcher at Kiwoom Securities, said, "Since the January U.S. employment data surprise, there has been increasing divergence in views among market participants, policymakers, and major institutions regarding the U.S. economy and Fed policy outlook. In this process, the current market appears to have entered a cautious phase. The key engine that triggered the market rally in January was the Fed's policy expectations, including the anticipation of liquidity inflow through interest rate cuts within the year, so whether these expectations will be withdrawn is crucial." She added, "It is unreasonable to bet on a withdrawal based on just the January employment data alone. Since there are two inflation indicators and one employment indicator scheduled before the March Federal Open Market Committee (FOMC) meeting, it is appropriate to adjust expectations while monitoring these."

Expected to Move Within a Box Range for the Time Being

Due to renewed concerns about U.S. tightening and valuation burdens following the January rebound, the market is expected to remain trapped within a box range for the time being.

Kang Jaehyun, a researcher at SK Securities, said, "The KOSPI will be trapped within a box range with the 2500 level as the upper limit for the time being. Due to the market rise in January, the KOSPI has reached near the overbought zone, and unlike January, the economy was relatively good, so concerns about tightening are likely to be highlighted." He added, "It is necessary to actively use indicators that can check the degree of concentration and flexibly adjust investment positions in overbought and oversold zones."

There is also an opinion that valuation burdens are increasing and speed adjustment is necessary. Roh Nokgil, a researcher at Shinhan Investment Corp., said, "The strong index rise since the beginning of the year is likely to slow down at a price-earnings ratio (PER) above 12. During the process of reversing expectations toward the Fed, the previously rapid rise of won-denominated assets also requires a deceleration process." He added, "Since the second half of 2021, the KOSPI, which had been drawing a downward channel, has shifted to a box range as it entered the final stage of earnings downward revisions. Although it is attempting a third trend reversal, considering the earnings downward revisions in Q4 last year and Q1 this year, speed adjustment is necessary."