[Good Morning Stock Market] "Declining Expectations for Interest Rate Cuts... KOSPI Expected to Start Lower"

[Image source=Yonhap News]

On the 5th, the Korean stock market is expected to show differentiation by sector after a decline at the start. This is due to the rebound in market interest rates causing the US stock market to close lower. Additionally, the weakness in big tech and the Philadelphia Semiconductor Index is also expected to impact related domestic sectors.

On the previous day (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 36,204.44, down 41.06 points (0.11%) from the previous session. The S&P 500 index recorded 4,569.78, down 24.85 points (0.54%). The Nasdaq index closed at 14,185.49, down 119.54 points (0.84%).

The current market sentiment is focusing more on macro factors than interest rates, as the prevailing view is that interest rates have entered a downward trend. However, there is analysis that the short-term outlook for "inflation decline trend + early rate cuts" may become uncertain. The slight rise in the US 10-year Treasury yield yesterday, which affected the US stock market, is due to this.

From the perspective of demand and supply through next year, the view that the trend will shift to disinflation is reasonable. The New York Fed’s supply chain index recorded -1.74 in October. The New York Fed’s supply chain index is recognized as an indicator closely related to companies’ overall input prices. This figure is the lowest since the index began in 1998. Furthermore, there is analysis that the US Consumer Price Index (CPI) for November, to be released next week, may decline compared to October’s 3.2%.

However, it is difficult to say definitively whether the Federal Reserve (Fed) will cut interest rates in the first half of next year. This is because past experiences, such as the misjudgment in 2021 that "inflation is temporary" and the policy failure in the 1980s when early rate cuts triggered inflation again, may influence monetary policy. Moreover, the December headline CPI, to be announced in January next year, could rise to the 3.3% range due to oil prices and other factors, which should also be kept in mind.

Considering this, the domestic stock market today is analyzed to start lower due to accumulated fatigue from recent gains, the weakness of the US stock market, and the rebound in market interest rates following a partial retreat in expectations for early Fed rate cuts.

Han Ji-young, a researcher at Kiwoom Securities, stated, "It is necessary to consider that the US government mentioned export controls on Nvidia to China and that big tech and the Philadelphia Semiconductor Index showed weakness due to the impact of the market interest rate rebound." She added, "From a sector perspective, it is appropriate to prepare for increased intraday price volatility in related domestic sectors."