[MarketING] Rising Inflation Uncertainty Again

KOSPI Starts Weak for 3rd Day
Market Waits Ahead of US January CPI Release

On the 13th, the KOSPI index started lower than the previous trading day, and dealers at Hana Bank's dealing room in Jung-gu, Seoul, are moving busily. Photo by Dongju Yoon doso7@

[Asia Economy Reporter Song Hwajeong] The KOSPI has continued its decline for the third consecutive day. As inflation uncertainty resurfaces in the United States, attention is focused on the U.S. January Consumer Price Index (CPI) results scheduled for release on the 14th. Accordingly, a cautious stance is expected to deepen.

KOSPI Weakens for Third Day Amid Inflation Concerns

As of 10:10 a.m. on the 13th, the KOSPI was at 2,449.85, down 19.88 points (0.80%) from the previous day. The KOSDAQ recorded 771.20, down 1.24 points (0.16%).

Ahead of the U.S. January CPI announcement, the market mood is increasingly cautious. On the 10th (local time), the U.S. released its expected inflation data, which rose, leading to a mixed close on the New York Stock Exchange. The Dow Jones Industrial Average rose 0.50%, and the S&P 500 increased by 0.22%, while the Nasdaq fell 0.61% by the close.

Seo Sangyoung, a researcher at Mirae Asset Securities, said, "The U.S. stock market saw profit-taking mainly in tech stocks as expected inflation rose and interest rates surged, which burdens the Korean stock market. With major economic indicators such as the U.S. CPI, industrial production, and retail sales upcoming, a cautious stance will dominate rather than active movements, and a process of digesting sell-offs will proceed."

With the rise in expected inflation, inflation uncertainty is resurfacing. The University of Michigan's 1-year expected inflation for February, released on the 10th, was 4.2%, up from 3.9% the previous month and exceeding the forecast of 4.0%. The long-term expected inflation over five years remained at 2.9%, as expected.

Han Jiyoung, a researcher at Kiwoom Securities, explained, "The 1-year expected inflation has risen compared to the previous month and forecasts, causing inflation uncertainty to resurface again. Since the January employment surprise, there has been talk of a possible further increase in the Federal Reserve's terminal interest rate level. This rise in expected inflation is likely to heighten market caution toward the upcoming January CPI scheduled for this week."

The key point to watch in this CPI is the results after the revision of the period and weighting. Han said, "The method has changed from reflecting data over the past two years to only one year. It is necessary to pay attention to whether the base effects of items that led last year's inflation surge are strengthened, and the impact of weighting revisions on major items such as housing costs and used cars." She added, "It will also be crucial to see whether the market's outlook on disinflation, mentioned by Jerome Powell, Chairman of the U.S. Fed, at the Federal Open Market Committee (FOMC), can be reinforced."

Market Expected to Maintain Cautious Stance While Watching Economic Indicators

Market volatility is expected to expand again depending on the January CPI results released on the 14th.

Ahn Youngjin, a researcher at SK Securities, said, "The U.S. CPI to be announced on the 14th will cause market volatility depending on the results. The consensus forecast is for a 0.4% increase month-over-month, compared to a 0.1% slowdown last month. Year-over-year, it is expected to be 6.2%, down from 6.5% last month, but most of this is due to base effects. The key question is whether market participants will brace themselves for the keyword 'reacceleration.'"

There are also forecasts that expectations for interest rate cuts will retreat through this week's economic data releases. Lee Kyungmin, a researcher at Daishin Securities, said, "This week, through U.S. January real economy and inflation indicators, the market will once again test the balance point between expectations for a soft landing and monetary policy. It is more likely to be a turning point where expectations for interest rate cuts retreat rather than a favorable investment environment."

Lee added, "If the pace of inflation decline slows and the expected timing for inflation to fall to the 2% range is delayed, it is time to be cautious about the possibility of further upward adjustments to this year's peak interest rate and the disappearance of interest rate cut expectations. This week, the disinflation expectations that had excited the market during the February FOMC and Chairman Powell's speech are expected to be controlled."