[MarketING] Stock Market Relieved by Powell's Remarks

Relief from Powell's Remarks, KOSPI Recovers to 2470 Level
Attention Needed on Future Economic Indicators

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] The KOSPI, reassured by remarks from Jerome Powell, Chair of the U.S. Federal Reserve (Fed), continued its rally for the second consecutive day, reclaiming the 2470 level. The market is expected to move cautiously while continuously monitoring economic indicators for the time being.

KOSPI Rises for Second Day, Recovers 2470 Level

As of 10:15 a.m. on the 8th, the KOSPI stood at 2475.21, up 23.50 points (0.96%) from the previous day. The KOSDAQ also rose 5.07 points (0.66%) to 777.86.

This strength is attributed to the New York stock market's rise, which was reassured by Chair Powell's remarks. Han Ji-young, a researcher at Kiwoom Securities, said, "The market digested Chair Powell's remarks and rebounded, benefiting from the U.S. stock market's recovery and the earnings results of major companies, showing a solid stock price trend."

On the 7th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 0.78%, the S&P 500 increased 1.29%, and the Nasdaq climbed 1.90%. The market was relieved as Chair Powell's remarks did not differ significantly from the February Federal Open Market Committee (FOMC) meeting and were not as hawkish as expected. The New York market, which started the day lower, turned upward in the afternoon following Powell's statement about the "start of disinflation." However, the gains narrowed when Powell mentioned that interest rates could be raised further depending on the data (economic indicators).

Kim Seok-hwan, a researcher at Mirae Asset Securities, analyzed, "In a discussion at the Washington DC Economic Club, Chair Powell said this year would see a significant decrease in inflation and that last week's FOMC remarks indicated the start of the disinflation process but that there is still a long way to go. The market interpreted this as dovish, leading to a weaker dollar and a wider decline in interest rates. However, Powell also mentioned that if economic data is stronger than expected, rates could be raised further, showing that economic indicators influence the additional rate hike stance." He added, "It will be important to see whether foreign investor sentiment, which had weakened after last week's employment report, improves following Powell's remarks." The weakened foreign investor sentiment appears to be easing. On this day, foreign investors net purchased over 100 billion KRW in the KOSPI, showing buying momentum in the stock market for the first time in three days.

Focus on Upcoming Economic Indicators

Investment sentiment, which had been dampened by the January employment data surprise, is expected to ease somewhat due to Powell's less hawkish remarks. However, given the still significant uncertainties, the market is expected to move while monitoring upcoming economic indicators.

Researcher Han said, "The market environment will remain neutral or better going forward, but since both the market and the Fed will be checking data at least until the March FOMC, it will be difficult for the index to open significantly higher. Therefore, a strategy of responding by individual sectors and stocks will be appropriate. For the time being, the market is expected to experience frequent mood changes depending on macro indicators, and investors should prepare for the possibility that the stock price ceiling of large-cap stocks, which are relatively more affected by macro factors, may be constrained."

First, the market is expected to focus on the University of Michigan's inflation expectations report scheduled for the 11th and the U.S. Consumer Price Index (CPI) report due on the 14th. Im Jaegyun, a researcher at KB Securities, said, "The 5-year inflation expectations are expected to remain at 2.9%, the same as the previous month, but the January CPI is forecasted to rise 0.5% month-on-month, and the core CPI to increase by 0.4%. However, the rebound in headline inflation is largely due to rising gasoline prices, and since the Fed has emphasized the importance of excluding housing prices, the market will pay more attention to inflation excluding housing."

If the rise in service prices excluding housing is confirmed, concerns may arise that the 2023 dot plot to be released in March could be higher than the 5.125% level seen in December. Researcher Im said, "If concerns grow that the dot plot to be announced in March will be higher, expectations for rate cuts will diminish, and market investment sentiment will weaken."