[Good Morning Stock Market] Middle East Conflict Chaos... KOSPI Uncertainty Expands

[Image source=Yonhap News]

On the 10th, the Korean stock market is expected to face increased uncertainty due to the Middle East conflict. In particular, caution is likely to grow ahead of the release of the U.S. September Producer Price Index (PPI) and Consumer Price Index (CPI) scheduled for the 11th-12th (local time).

During the domestic market holiday period (6th-9th), the U.S. stock market closed higher despite the outbreak of the Middle East conflict, supported by expectations of a slowdown in September employment data, a slowdown in September CPI, and interest rate declines following dovish remarks from some Federal Reserve (Fed) officials.

On the 9th (local time), the Dow Jones Industrial Average closed at 33,604.65, up 197.07 points (0.59%) from the previous session. The S&P 500, centered on large-cap stocks, rose 27.16 points (0.63%) to 4,335.66, and the Nasdaq increased by 52.90 points (0.39%) to 13,484.24.

The stock market's relief is interpreted as stemming from the qualitative slowdown shown in the previously released September employment data. Although nonfarm payrolls exceeded consensus expectations (336,000 vs. 170,000), other key indicators such as average hourly earnings (+4.2%) and unemployment rate (+3.8%) fell short of forecasts.

The biggest news impacting today's stock market is the Israel-Palestine conflict that occurred over the weekend. The market's focus on the Middle East conflict is due to inflation concerns. West Texas Intermediate (WTI) crude oil futures, which had fallen to the low $80s after reaching $94 per barrel last month, surged 4.1% to above $86 immediately following the conflict. Rising international oil prices stimulate inflation, which could also influence the Fed's interest rate policy.

Since the current war zone is not an oil-producing area, it is unlikely to directly cause oil supply and demand disruptions. The key issue is whether the war will expand. There are concerns that the conflict could spread into anti-Israel sentiment, anti-Western sentiment, and intensified tensions between Iran and Saudi Arabia. If the war expands, the Strait of Hormuz in Iran could be blocked. The Strait of Hormuz accounts for about 20% of global oil transportation. Additionally, production disruptions in surrounding oil-producing countries could trigger further sharp increases in oil prices.

Fortunately, Iran, which has been identified as backing Hamas, officially announced that it did not participate in the attack. The likelihood of the frontlines between the two countries spreading to neighboring countries is low. Moreover, even among Middle Eastern countries currently, public opinion toward Hamas is less favorable compared to the past, which differentiates the current situation from previous ones.

Han Ji-young, a researcher at Kiwoom Securities, predicted, "Today, the Korean stock market will be affected by the uncertainty of the Middle East conflict, but interest in defense stocks, which have been sidelined and experienced supply-demand gaps in terms of stock prices, will be rekindled." She added, "Unless the situation leads to major changes in existing stock market trends, inflation, or Fed policy outlooks, or direct involvement by Iran or Saudi Arabia, the impact and persistence of the shock will be limited."