[Good Morning Stock Market] "KOSPI Expected to Start Higher... Exchange Rate Issues Again"

Rising Won-Dollar Exchange Rate Draws Attention to Foreign Investor Flows
Improved US Economic Indicators Increase Justification for Tightening
Nasdaq Closes Higher, Expecting Rebound in Korean Stock Market

[Asia Economy Reporter Hwang Yoon-joo] Han Ji-young, a researcher at Kiwoom Securities, predicted on the 16th that the Korean stock market would rebound. Although concerns about tightening by the U.S. Federal Reserve (Fed) are increasing due to strong consumer indicators, the market is expected to be influenced by the strong performance of the U.S. stock market the previous day and the inflow of buying demand due to the perception of excessive decline in the KOSPI.

However, the rebound momentum of large-cap stocks is expected to be limited. The rising exchange rate is a burden. This is because it is anticipated to have a negative impact on the supply and demand of some foreign investors engaging in currency arbitrage plays.

From the perspective of sectors and themes, attention should be paid to changes in investment sentiment related to domestic Apple value chain stocks following news that Apple (+1.4%) will delay the launch of MR devices, and travel and airline-related stocks following news that Airbnb (+13.4%) posted strong earnings due to an increase in the number of tourists.

On the previous day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,128.05, up 38.78 points (0.11%) from the previous session. The large-cap focused S&P 500 index closed at 4,147.60, up 11.47 points (0.28%), and the tech-heavy Nasdaq index closed at 12,070.59, up 110.45 points (0.92%).

The current concern is that the advantage in the standoff between the market and the Fed over rate cuts within the year is shifting toward the Fed. So far, Fed officials have maintained a hawkish stance, indicating no rate cuts within the year.

In contrast, stock market participants have been betting on a path of 'pause after the March hike + final rate level in the 5.0% range + rate cuts within the year' based on 'imminent recession + inflation slowdown.'

However, economic indicators, including the January U.S. Consumer Price Index (CPI), have come out better than expected. January retail sales increased by 3.0% month-over-month, as announced the previous day. This figure significantly exceeded the consensus (1.8%) and marked the largest increase in 22 months since March 2021. The first-quarter growth forecast was also revised upward from 2.2% to 2.4%.

According to the Chicago Mercantile Exchange (CME) FedWatch, the probability of a 50 basis point hike at the March Federal Open Market Committee (FOMC) meeting has risen from 9.2% to 12.2%. The 10-year Treasury yield is also rising, indicating reactions in the bond market. As recent market rate increases suggest, from a short-term perspective, the stance appears to be shifting toward the Fed.

On the other hand, not only the stock market but also the cryptocurrency market saw the leading asset Bitcoin surpass 31 million KRW (based on Upbit prices at 7 a.m.), reaching a new high. Risk asset preference remains robust. The strong performance of risk assets such as stocks and cryptocurrencies despite this turmoil may be due to the judgment that the January CPI exceeding consensus is a technical factor caused by weighting adjustments and that the inflation downward trend remains valid.

The challenges that the risk asset market, including stock assets, must overcome going forward will be how to resolve the 'gap issue with the Fed' as well as the 'gap issue with safe asset markets such as bonds.' It is expected to take time to resolve these gaps.

In this process, the stock market is expected to develop within a certain range. A strategy focusing on sector and stock plays from a bottom-up rather than top-down perspective is considered an alternative.

Meanwhile, in the Seoul foreign exchange market yesterday, the won-dollar exchange rate closed at 1,282.2 won per dollar, up 12.8 won from the previous day's closing price. During the day, the exchange rate rose to 1,284.8 won. This surpassed the yearly high of 1,280.9 won (based on the high price) recorded on January 4, marking the highest level since the intraday high of 1,290 won on December 23 last year.