[Good Morning Stock Market] Oil Price Surge Raises Inflation Concerns... "KOSPI Expected to Start Lower"

On the 6th, the Korean stock market is expected to decline slightly. This is due to concerns that the price of West Texas Intermediate (WTI) crude oil, which reached its highest level since November last year, could increase upward inflation risks. As a result, the US Nasdaq closed slightly lower, and US Treasury yields rose.

On the previous day (local time), the Dow Jones Industrial Average closed at 34,641.97, down 195.74 points (0.56%) from the previous session. The S&P 500, focused on large-cap stocks, fell 18.94 points (0.42%) to 4,496.83, and the tech-heavy Nasdaq dropped 10.86 points (0.08%) to 14,020.95.

The biggest issue in the market yesterday was 'international oil prices.' On the previous day at the New York Mercantile Exchange (NYMEX), the WTI crude oil futures price surpassed $90 per barrel during the session. The market had expected Saudi Arabia (Saudi) and Russia to extend their 'oil production cuts,' but international oil prices hit their highest level since November last year due to Saudi Arabia's tougher-than-expected decision.

This is because Saudi Arabia announced it would extend the oil production cut (reducing production by 1 million barrels per day) until the end of December. This is a tougher measure than the market had anticipated for the end of October. Russia also announced it would extend its decision to reduce oil exports by 300,000 barrels per day until the end of December.

The rise in international oil prices has increased upward inflation risks. In the US, retail gasoline prices typically decline seasonally after the driving season (late May to early September). However, due to recent global oil supply and demand influences, international oil prices have risen, making prices higher than last year, which is problematic.

On September 4 last year, the retail gasoline price was $3.764, but it has now jumped to $3.811. This is the highest level in 10 years and the second highest since 1994. Gasoline prices in the US directly affect inflation and consumer sentiment.

Since July, as international oil prices have risen significantly, uncertainty about future inflation outlooks has increased, and the pressure on US Treasury yields reflecting this has also grown. The 2-year and 10-year US Treasury yields rose by 7.7 basis points (1bp = 0.01 percentage points) and 8.9 basis points, respectively, to 4.96% and 4.27%. The dollar index also rose 0.55% from the previous day to 104.8, marking a six-month high.

Sangyoung Seo, a researcher at Mirae Asset Securities, predicted, "The KOSPI will start down about 0.3% around the flat range." He added, "The 'August consumer price index' announced yesterday rebounded 3.4% compared to last year, exceeding the forecast (+2.8%). Considering that the main factor driving inflation was 'oil prices,' concerns about inflation volatility may also expand."