[Good Morning Stock Market] Persistent US Inflation Concerns... "KOSPI Expected to Start Down 0.5%"

After July FOMC Minutes Release, US Stock Market Declines Further
Fed Indicates Possibility of Additional Interest Rate Hikes

Image source=Yonhap News

On the 17th, the domestic stock market is expected to start lower due to concerns over additional interest rate hikes by the U.S. Federal Reserve (Fed).

The U.S. stock market fell sharply and closed lower the previous day following the release of the minutes from the July Federal Open Market Committee (FOMC) meeting. The Dow Jones Industrial Average dropped 180.65 points (0.52%) to 34,765.74, the large-cap S&P 500 index closed at 4,404.33, down 33.53 points (0.76%), and the tech-heavy Nasdaq index ended the day at 13,474.63, down 156.42 points (1.15%).

The July FOMC minutes included the possibility of further interest rate hikes. The minutes stated, "Participants noted that uncertainty about the economic outlook remains high," and "agreed that future policy decisions will depend on the totality of incoming data, economic outlook, inflation effects, as well as the impact on the balance of risks." Additionally, concerns were expressed that excessive tightening could unnecessarily weaken the economy, while moving too quickly to easing policies could lead to repeated mistakes of inflation surging again.

Previously, the Fed raised the federal funds rate (FFR) target range by 0.25 percentage points to 5.25%?5.50% at last month's FOMC meeting. The market currently expects rates to remain steady in September, with investors betting on a scenario of no further hikes this year. The FOMC will meet three more times this year in September, November, and December.

However, positive U.S. economic indicators were also released. U.S. housing starts in July increased by 3.9% month-over-month to 1.452 million units, in line with expert forecasts. New building permits, which can indicate future housing market trends, rose 0.1% month-over-month to 1.442 million units. Industrial production in July returned to growth after three months, increasing 1.0% month-over-month, surpassing the market expectation of 0.3%.

The release of the FOMC minutes highlighting the possibility of further rate hikes is expected to dampen investor sentiment. Additionally, the improvement in indicators led to a stronger dollar and a decline in Treasury yields, resulting in selling pressure mainly in tech stocks. The strong dollar is analyzed to potentially lead to won depreciation and foreign investor supply burdens.

Seo Sang-young, head of media content at Mirae Asset Securities, said, "Weakness in semiconductor and electric vehicle-related stocks continued, and as Treasury yields rose sharply before the market close, the decline in related sectors widened, showing a tendency to be more sensitive to negative news than positive developments." He added, "Of course, the highlighted possibility of additional rate hikes after the FOMC minutes is a burden, but since it was anticipated, the risk of expanded concerns is limited."

He continued, "Attention should also be paid to the possibility of a rebound following the previous day's decline," adding, "Considering these factors, the domestic stock market is expected to start down about 0.5%, then fluctuate with rebounds and selling pressure, changing according to foreign investor supply and demand."

Han Ji-young, a researcher at Kiwoom Securities, said, "Due to the Fed's tightening concerns causing a sharp rise in U.S. market interest rates and lingering effects of the China-related crisis, the market is expected to start lower," but added, "However, given the technical buying pressure from four consecutive days of declines in the KOSPI, the intraday additional downward pressure on the index is expected to be limited."