[MarketING] KOSPI Rises to New High After One-Day Break on Debt Ceiling Deal

KOSPI Recovers to 2580 Level... New Record High
Samsung Electronics and SK Hynix Hit 52-Week Highs Again

The KOSPI, which had taken a day off, started on an upward trend and hit a new intraday high. This is interpreted as uncertainty being somewhat resolved following the resolution of the US debt ceiling negotiations. Additionally, the semiconductor sector continued its strength, with Samsung Electronics and SK Hynix both hitting 52-week highs, driving the index higher.

KOSPI Hits New High... Samsung Electronics and SK Hynix Reach 52-Week Highs

As of 10:15 AM on the 30th, the KOSPI was at 2,583.67, up 24.86 points (0.97%) from the previous day. The KOSDAQ rose 5.46 points (0.65%) to 848.69.

[Image source=Yonhap News]

The KOSPI hit a new high, and Samsung Electronics and SK Hynix both recorded new 52-week highs. The KOSPI climbed to 2,585.12 during the session, surpassing the previous high of 2,582.23 set on the 18th of last month. Samsung Electronics traded at 71,800 KRW, up 2.13%. It reached as high as 72,100 KRW during the session, marking its third consecutive day of new 52-week highs. SK Hynix rose 3.39% to 112,900 KRW, hitting an intraday high of 113,400 KRW, also setting a new 52-week high.

This is attributed to eased concerns following the resolution of the debt ceiling negotiations, which had been a source of uncertainty in the market. On the back of expectations for a debt ceiling deal, US stock markets closed sharply higher last Friday, with all three major indices posting significant gains. On the 26th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 1.00%, the S&P 500 increased by 1.30%, and the Nasdaq climbed 2.19%. The previous day was a holiday for Memorial Day.

President Joe Biden and House Speaker Kevin McCarthy reached a final agreement on raising the debt ceiling on the 28th. After marathon phone calls, they agreed in principle to raise the limit, followed by coordination of the bill draft and further calls by working-level negotiators to reach the final agreement. Both sides agreed to raise the debt ceiling for two years until 2024, freeze spending for the 2024 fiscal year, and limit budget increases to a maximum of 1% in 2025. The agreement includes reclaiming unused COVID-19 funds, expediting approval procedures for certain energy projects, and adding work requirements for beneficiaries of food assistance programs for low-income households.

Han Ji-young, a researcher at Kiwoom Securities, explained, "Despite the surprise in the April US Personal Consumption Expenditures (PCE) price index on the 26th, the US stock market closed higher, supported by growing expectations for a debt ceiling deal, strong demand for artificial intelligence (AI), and a 6.3% rise in the Philadelphia Semiconductor Index."

While the final resolution of the debt ceiling negotiations has brought relief to the market, noise is expected to continue until the vote on the 31st. Han said, "The growing likelihood of a debt ceiling deal, which is currently at the center of market news flow, is acting as a tailwind for the stock market. However, the agreement will be put to a congressional vote on the 31st, and there is opposition within the Republican Party regarding the insufficient scale of budget cuts, as well as resistance from hardline Democrats. Considering this, political uncertainty will persist until the vote or the US Treasury's default deadline X-date (which has been extended from the original June 1 to June 5). From the stock market's perspective, it is appropriate to treat this as noise."

Jo Yeon-ju, a researcher at NH Investment & Securities, said, "Neither the Republicans nor the Democrats are fully satisfied with the current agreement, so uncertainty remains regarding the House and Senate votes. If the agreement passes, the budget cuts will be minimal, and the overall budget will not be significantly reduced, so the macroeconomic impact is expected to be limited. The easing of US default risk is a positive factor."

Focus Returns to Inflation and Recession After Debt Ceiling Issue

After the debt ceiling issue is resolved, the market is expected to refocus on inflation and recession concerns.

Jo Jun-gi, a researcher at SK Securities, said, "While the resolution of the debt ceiling negotiations is positive, interpreting this news as a signal for a stock market rally is not appropriate. Unlike the bond market, the stock market has not seriously reacted negatively during the debt ceiling negotiation difficulties and has maintained strength, so it is ambiguous to view this as a resolution of bad news."

Given the persistent inflationary pressures confirmed by the US April PCE inflation data released over the past weekend, caution regarding inflation should not be relaxed. The US April PCE price index rose 4.4% year-over-year, exceeding the previous month's 4.2% and the forecast of 3.9%. Core PCE, which excludes volatile energy and food prices, increased 4.7%, also surpassing the forecast of 4.6%. As a result, the probability of a 25 basis point (1 bp = 0.01 percentage point) rate hike at the June Federal Open Market Committee (FOMC) meeting, which had been in the 10% range on the Chicago Mercantile Exchange (CME) FedWatch tool, rose to 64%.

Jo said, "If the market's focus on the debt ceiling issue and AI enters a lull, attention may shift back to inflation and recession concerns, which is not positive. Recent market interest rate increases have been quite strong, with the US 10-year Treasury yield rising about 50 basis points since early May."