[MarketING] Relief from US Inflation Data... KOSPI Rises Over 1%

KOSDAQ Also Rises Over 2%
US February CPI Meets Expectations

[Image source=Yonhap News]

The market has been reassured by the U.S. inflation data for February, leading the KOSPI to rise by over 1%. Buying momentum following the previous day's excessive decline is also contributing to the stock price increase. It appears that investment sentiment, which had been dampened by the collapse of Silicon Valley Bank (SVB) in the U.S., has somewhat eased.

KOSPI rebounds after one day

As of 10:10 a.m. on the 15th, the KOSPI was up 37.97 points (1.62%) from the previous session, standing at 2386.94. The KOSDAQ rose 19.48 points (2.57%) to 777.53.

The U.S. February Consumer Price Index (CPI), which had drawn market attention, met expectations, alleviating some of the anxiety that had engulfed the market. On the 14th (local time), the U.S. Department of Labor announced that the February CPI rose 6.0% year-on-year, marking the smallest increase since September 2021. Month-on-month, it rose 0.4%. Both year-on-year and month-on-month figures were in line with market forecasts. The core CPI, which excludes volatile energy and food prices, increased 5.5% year-on-year and 0.5% month-on-month. While the year-on-year increase slowed compared to January (5.6%), the month-on-month rise was larger than January's 0.4%. With the CPI meeting expectations, the U.S. stock market also surged significantly the previous day. On the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 1.06%, the S&P 500 increased 1.68%, and the Nasdaq Composite climbed 2.14%.

Sangyoung Seo, a researcher at Mirae Asset Securities, said, "The U.S. stock market showed strength as inflationary pressures eased and concerns about regional banks diminished, which will act as a positive factor for the Korean stock market." He added, "Additionally, the relatively large gains in key indices that influence the Korean market, such as the Russell 2000 index rising 1.87% and the Philadelphia Semiconductor Index increasing 3.03%, will have a favorable impact on investor sentiment."

Concerns over the SVB incident have also somewhat subsided, positively affecting the stock market. Regional banks, which had plunged due to bankruptcy fears, showed signs of stabilization, with First Republic Bank surging sharply the previous day. After announcing that there were no large-scale deposit withdrawals, First Republic jumped about 26.98%.

Moreover, buying interest following the previous day's sharp decline seems to be supporting the stock price rise. Ji-young Han, a researcher at Kiwoom Securities, explained, "The domestic stock market is expected to rebound, supported by the strong U.S. stock market following favorable February CPI data and buying interest driven by perceptions of an excessive drop from the previous day's plunge." She added, "The rebound of U.S. small and regional banks such as First Republic and Zions Bancorporation, which had plummeted due to potential closure concerns, will also act as a factor improving investor sentiment in the domestic market."

Market focus now shifts to the March FOMC next week

With the SVB incident calming down and the market reassured by inflation data, attention is now expected to focus on the upcoming U.S. Federal Open Market Committee (FOMC) meeting scheduled for March next week. Considering the CPI results, the market anticipates that the Federal Reserve (Fed) will implement a baby step (0.25% interest rate hike) at this FOMC.

Researcher Ji-young Han said, "Ultimately, the February CPI was an event that provided some relief to the market, which had been experiencing turmoil due to liquidity concerns and potential systemic risks arising from the SVB incident." She analyzed, "With the perception that the SVB incident was a negative effect caused by the Fed's aggressive tightening, this CPI result gives the Fed a rationale to moderately adjust the pace of tightening." Han expects the Fed to raise rates by 25 basis points (1bp = 0.01 percentage point) at the March FOMC.

Jaemin Choi, a researcher at Korea Investment & Securities, said, "While some expect the Fed to pause or cut rates, considering solid employment and inflation, it is highly likely that the Fed will continue gradual rate hikes to reach a sufficiently restrictive level." He explained, "Given that the SVB incident inevitably worsened financial conditions to some extent, and that the Fed's rate hikes suppress aggregate demand through deteriorating financial conditions, the Fed is likely to raise rates by 25bp at the March FOMC."

Looking ahead, inflation risks are expected to decrease, but financial and economic risks are projected to expand. Sungwoo Park, a researcher at DB Financial Investment, said, "The CPI supports a 25bp hike at next week's FOMC, while recent financial instability supports a pause." He added, "However, since some financial support measures have been introduced and halting rate hikes could send an unnecessarily accommodative signal to the market, and given that controlling inflation expectations remains necessary, a 25bp hike at the March FOMC is more likely." He further noted, "But going forward, inflation risks will diminish while financial and economic risks will increase."