[Good Morning Stock Market] Watching the March FOMC Meeting Amid Easing Bank Crisis

Financial Instability from CS Settles... US Stock Market Rises
"Fed's Role Crucial for Market Stability"

Last night, as the U.S. stock market closed on an upward trend, the KOSPI is also expected to show gains on the 21st. This is because concerns over a banking system collapse have subsided, likely improving investor sentiment toward risk assets. However, caution regarding the results of the March Federal Open Market Committee (FOMC) meeting is expected to persist.

[Image source=Reuters Yonhap News]

Seosangyoung, Researcher at Mirae Asset Securities: “KOSPI Expected to Rise Amid Improved Foreign Demand”

The rise in the U.S. stock market, reflecting the efforts of global central banks, is positive for the domestic market. Although First Republic and Credit Suisse (CS) plunged sharply, falling 47% and 53% respectively, which burdens the market, attention has been drawn to the fact that central banks worldwide are expanding efforts to restore market confidence. As risk asset preference increased, the Dow Jones Industrial Average rose 1.2%, and the S&P 500 index increased by 0.9%.

However, the Nasdaq index’s gain was limited to 0.4%. This was due to some technology stocks, including Microsoft (MS), showing weakness following Amazon’s cloud division restructuring. Since cloud-related stocks showed weakness, volatility expansion in related sectors is expected to be inevitable in the domestic market as well.

Still, improvement in foreign demand is worth anticipating. Last night, the Philadelphia Semiconductor Index and the Russell 2000 Index, which have a high correlation with the domestic market, rose by around 1%, suggesting an improvement in foreign demand. The previous day, the domestic market declined due to foreign investors’ net selling in both spot and futures markets reflecting economic uncertainty, but a rise of about 0.7% is expected at the opening this day.

Park Sanghyun, Researcher at Hi Investment & Securities: "A Strong Liquidity Safety Net from the Fed Is Needed Now"

Although financial instability triggered by CS has eased, it has clearly had a negative impact on financial markets. The write-down of 16 billion Swiss francs in AT1 bonds has increased the risk of a domino effect of defaults. Large losses and even the possibility of bankruptcy cannot be ruled out for hedge funds known to have purchased CS AT1 bonds after the CS crisis broke out, aiming for capital gains.

Nevertheless, the market has been able to stabilize because the European Central Bank (ECB) actively intervened to calm the situation. Christine Lagarde, President of the ECB, stated, “We will pursue both price stability and financial stability,” adding, “We have all the necessary tools for financial stability and will use them if needed.” This means the ECB has committed to acting as a strong liquidity safety net.

Now, the key is the Federal Reserve’s (Fed) determination. It is expected that the market will maintain its sense of relief only if Chairman Powell and other key officials express their willingness to supply liquidity at the March FOMC meeting. Considering the crisis learning effects of major central banks so far, the Fed is unlikely to make policy mistakes that would exacerbate market anxiety.