[Weekly Market Outlook] US February Indicators and SVB Bankruptcy... Volatility Expected to Increase

US February CPI, PPI, and Industrial Production Scheduled for Release
Focus on SVB Bankruptcy Impact

The domestic stock market is expected to experience increased volatility next week. With the release of U.S. economic indicators pending, the index is likely to fluctuate amid issues such as the Silicon Valley Bank (SVB) bankruptcy.

According to the securities industry on the 12th, the major variables affecting the domestic stock market this week are U.S. economic indicators. The February Consumer Price Index (CPI, on the 14th), February Producer Price Index (PPI, on the 15th), and industrial production (on the 17th) are all awaited.

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With the Federal Reserve's hawkish stance strengthening, most of these indicators will influence the Fed's monetary policy, leading to a market environment of fluctuating optimism and pessimism. Inflation concerns highlighted last month were due to price pressures from strong consumer demand. The market sentiment leans more toward the possibility of downward pressure from the economic indicators to be released this week.

According to the Wall Street Journal (WSJ), experts expect the February CPI to have risen 6.1% year-over-year, slightly slowing from the previous month's 6.4% increase. WSJ forecasts that the February CPI will rise 0.5% month-over-month, maintaining the same rate as the previous month. The core CPI, which excludes the volatile energy and food sectors, is expected to have increased 5.5% year-over-year and 0.4% month-over-month.

Choi Yujun, a researcher at Shinhan Investment Corp., said, "Especially the KOSDAQ faces higher technical burdens compared to the KOSPI, so attention to volatility is necessary," adding, "In last year's tightening phase, favorable business conditions and expectations for profit improvement were key factors differentiating stock prices." Choi also suggested a rotation strategy focusing on B2G (business-to-government) concepts within the machinery sector, as well as approaches to the automobile, defense, insurance, and essential consumer goods sectors.

Among these variables is also the aftermath of the SVB bankruptcy. The SVB collapse has dampened investor sentiment toward risk assets. The market generally views the likelihood of the SVB bankruptcy spreading to other banks as low. It is assessed that the problem was highlighted because SVB had a higher bond ratio and relatively less stable retail funding compared to other U.S. banks.

However, from the Fed's perspective, this event could prompt consideration of a rate hike between 25 basis points and 50 basis points. According to the Chicago Mercantile Exchange (CME) FedWatch, immediately after the SVB bank failure, about 60% of interest rate futures market participants expected a 25 basis point increase at the March FOMC meeting. Over the weekend, the expectation for a 50 basis point hike by the Fed rose to nearly 70%.

Park Seungjin, a researcher at Hana Securities, stated, "Detailed signals remain mixed, and new variables have emerged from intense tightening measures like those that caused SVB's failure amid conflicts over fiscal spending and tax proposals," adding, "It is necessary to respond to the market from the perspective of entering a range-trading phase again after confirming the 10-year U.S. Treasury yield peak at 4.10%."