[Good Morning Stock Market] US June CPI Slows... "KOSPI Expected to Start Higher"

The Korean stock market is expected to start higher on the 13th. This is due to expectations that the US interest rate hikes are nearing their end phase, as the US Consumer Price Index (CPI) for June showed a faster-than-expected slowdown.

On that day, the Dow Jones Industrial Average closed at 34,347.43, up 86.01 points (0.25%) from the previous session. The S&P 500, which focuses on large-cap stocks, ended at 4,472.16, up 32.90 points (0.74%), and the tech-heavy Nasdaq closed at 13,918.96, rising 158.26 points (1.15%).

The reason for the rise in the US stock market is the easing of rapid inflation. According to the US Department of Labor, the June CPI rose 3.0% year-on-year, slightly below the market forecast of 3.1%. This is about one-third of the CPI growth rate at its peak in the same month last year (9.1%). The core CPI also recorded 4.8%, lower than the market expectation of 5.0%. The core CPI is considered a more accurate inflation indicator by the Federal Reserve than the headline CPI.

Following the CPI announcement, expectations have grown that the July rate hike will be the last, but there are also voices cautioning against optimism. This is because Federal Reserve officials still maintain a cautious stance on policy shifts.

[Image source=Yonhap News]

Richmond Fed President warned that inflation is still too high, and if policy is eased too soon, inflation could rise again later. Minneapolis Fed President also mentioned that if inflation becomes more entrenched than expected, further rate hikes may be necessary, leaving the possibility of additional increases after the July Federal Open Market Committee (FOMC) meeting, which is a concern in the market.

However, there is consensus that inflation is being controlled on a trend basis. Ji-young Han, a researcher at Kiwoom Securities, analyzed, "At this point, unless the CPI consistently rises above 0.2%, it is appropriate to view the inflation level downtrend as unchanged."

Han explained, "The headline CPI, which peaked in June last year, is expected to see the base effect diminish over time. Since the core CPI peaked in September last year, the decline in prices of core items such as services and housing costs is expected to widen from the fourth quarter, which also supports the inflation level downtrend." It is also noteworthy that the Beige Book released the previous day diagnosed that inflation expectations will remain stable or decline over the next few months.

Lee Chang-yong, Governor of the Bank of Korea, is presiding over the Monetary Policy Committee meeting held on the 25th at the Bank of Korea in Jung-gu, Seoul. This Monetary Policy Committee meeting was the first to be held at the newly completed Bank of Korea headquarters, finished after six years. Photo by Joint Press Corps

Supported by the US CPI results falling short of expectations and the Nasdaq's strength, the Korean stock market is also expected to start higher. The easing of Fed's excessive tightening concerns has led to a sharp drop in the won-dollar exchange rate (offshore -17 won) and a decline in US market interest rates, which is also positive.

Han forecasted, "In the domestic stock market, under positive foreign demand conditions, the price momentum of growth stocks, which had high sensitivity to interest rate increases, is expected to improve."

Also, the Bank of Korea's Monetary Policy Committee meeting is scheduled during the day. Given the slowdown in the US June CPI, a rate freeze by the Bank of Korea is likely. Han explained, "The stock market's attention will focus more on the Bank of Korea Governor's remarks than the July rate decision, as the degree of a hawkish pause could affect the stock market through bond and foreign exchange market channels."