[Good Morning Market] US Stocks Rise on Sharp October PPI Slowdown... "KOSPI Expected to Start Higher"

US October PPI Falls 0.5% MoM
Largest Drop Since April 2020...Inflation Easing Signal

Image source=Reuters·Yonhap News

With the slowdown in producer prices leading to a firm close in the U.S. stock market, the domestic market is expected to start higher on the 16th.

On the 15th (local time), the Dow Jones Industrial Average closed at 34,991.21, up 163.51 points (0.47%) from the previous session, while the large-cap-focused S&P 500 index ended at 4,502.88, up 7.18 points (0.16%). The tech-heavy Nasdaq index closed at 14,103.84, rising 9.45 points (0.07%).

The market closely watched economic indicators such as the Producer Price Index (PPI). The October PPI, representing wholesale prices, fell 0.5% month-on-month, contrary to experts' forecast of a 0.1% increase. This decline was the largest since a 1.2% drop in April 2020. Year-on-year, the October PPI rose 1.3%, falling short of the expected 1.9% increase.

Considering that wholesale price increases typically pass through to consumer prices, this PPI data is interpreted as a signal that inflationary pressures are easing. Consequently, there are claims that expectations for the end of the Federal Reserve's (Fed) tightening have gained further momentum.

Consumer spending recorded a decline for the first time in seven months due to the effects of tightening. According to the U.S. Department of Commerce, retail sales in October amounted to $705 billion, down 0.1% from the previous month. This was the first monthly decrease in retail sales since March.

Additionally, concerns over a government shutdown have somewhat eased. The U.S. House of Representatives passed an additional temporary budget bill to fund the federal government through January and February of next year, making a shutdown unlikely. The temporary budget bill is pending review and approval in the Senate, but with bipartisan leadership support, it is expected to pass smoothly.

The KOSPI index is expected to start 0.2% to 0.5% higher on the 16th. Kim Seok-hwan, a researcher at Mirae Asset Securities, explained, "Since the announcement of the short-selling ban in Korea on the 5th, individual investors recorded net sales of about 3.2 trillion won from the 6th to the 15th. Especially on the 15th, arbitrage-related selling led to the largest net sales in about a year, approximately 1.8 trillion won." He added, "During the same period, foreigners and institutions recorded net purchases of 2.6 trillion won and 1.1 trillion won respectively, contributing to a 4.5% rise in the domestic stock market."

He emphasized, "Ultimately, from the perspective of domestic investors, the key issue is whether an investment environment can be created where foreign demand can be sustained, and the recent trend is positive in that regard."

Han Ji-young, a researcher at Kiwoom Securities, stated, "Expectations for a weakening of the Fed's tightening due to the slowdown in U.S. PPI and consumer indicators are likely to continue. However, with the U.S.-China summit results scheduled to be announced before the domestic market opens and short-term profit-taking pressure following recent sharp rises, the stock market is expected to show a neutral trend."