[Good Morning Stock Market] Fed Rate Hold Expectations... KOSPI Expected to Start Higher

New York Fed Announces 1-Year Inflation Expectation at 4.1%
June FOMC Rate-Hold Expectations Rise
Philadelphia Semiconductor Index Closes Higher

[Image source=Yonhap News]

The Korean stock market is expected to start higher on the 13th. This is due to the U.S. May Consumer Price Index (CPI) forecast coming in at 4.0%, which has increased expectations for the Federal Reserve (Fed) to hold interest rates steady.

On the previous day, the U.S. Dow Jones Industrial Average closed at 34,066.33, up 189.55 points (0.56%) from the previous session. The S&P 500 rose 40.07 points (0.93%) to 4,338.93, and the tech-heavy Nasdaq closed up 202.78 points (1.53%) at 13,461.92.

The market is currently digesting positions ahead of important upcoming events: the May CPI release today (local time), the Federal Open Market Committee (FOMC) meeting on Wednesday, and retail sales and industrial production data on Thursday.

The U.S. stock market closed higher because the New York Fed announced that the 1-year expected inflation rate dropped to 4.1%. This is down 0.3 percentage points from the previous 4.4%, marking the lowest level since May 2021. The increased possibility of the Fed holding rates steady brought relief to the market.

However, the 3-year expected inflation rate was revised up from 2.9% to 3.0%, and the 5-year expected inflation rate rose from 2.6% to 2.7%. Sangyoung Seo, Head of Media Content at Mirae Asset Securities, explained, "In the short term, inflation is expected to slow mainly due to housing and medical costs, but the high price levels may persist in the long term."

The market is raising expectations for the FOMC based on the slowdown in 1-year expected inflation. According to the Chicago Mercantile Exchange (CME) FedWatch, investors in the federal funds futures market see a 77% probability of a rate hold in June.

The May U.S. CPI release today (local time) is a key variable. Experts generally agree that if the CPI inflation rate slows to 4.0% year-over-year as Wall Street analysts expect, the Fed is very likely to hold rates steady in June. Although the 4.0% forecast is twice the Fed’s target, it represents a significant slowdown from April’s 4.9%.

The Korean stock market is expected to show positive movement in the semiconductor sector today. The Philadelphia Semiconductor Index in the U.S. closed up 3.31%. Citigroup raised Micron by 3.09% after stating that even if the semiconductor sector declines following the AI-led rally, Micron would remain the best choice. Broadcom surged 6.31% after announcing chips that improve power efficiency for Wi-Fi routers, and news that the European Union (EU) is likely to grant conditional approval for VMware’s acquisition, a cloud computing company, was also positive. These factors are expected to drive related stocks higher in the Korean market as well.

However, factors such as rising delinquency rates signaling a more pronounced U.S. economic slowdown, overall inflation numbers decreasing but core inflation remaining high, and limited gains confined to certain stocks rather than the entire market are causing a position-digesting phase. Head Seo stated, "Considering these conditions, the Korean stock market is expected to start with about a 0.5% gain, followed by a differentiated market by stocks and sectors ahead of major variables."