[Weekly Market Outlook] KOSPI Trapped in a Box Range, Eyes on US December FOMC

This week’s (December 11-15) stock market is expected to continue its box range movement as attention focuses on the December U.S. Federal Open Market Committee (FOMC) meeting.

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Last week, the KOSPI rose 0.51% and the KOSDAQ increased by 0.38%. The KOSPI remains stuck in a narrow box range, showing sluggish movement. Choi Yujun, a researcher at Shinhan Investment Corp., analyzed, “The KOSPI has been moving within a narrow box range between the 60-day and 120-day moving averages for over three weeks,” adding, “Despite continued interest rate declines, the 120-day moving average, which signals the economy, is being perceived as a short-term peak, causing resistance.”

The influence of falling interest rates is diminishing. Researcher Choi explained, “The slowdown in stock price momentum is due to the reduced impact of discount rate declines and the widening inversion of the short- and long-term interest rate spread, which signals a potential economic slowdown.” Kim Younghwan, a researcher at NH Investment & Securities, also noted, “The KOSPI is fluctuating within a narrow box around the 2500 level because some investors interpret the interest rate decline not as a relief in discount rate burden but as concerns over a U.S. economic slowdown.”

There is a forecast that this box range market may continue until the end of the year. Researcher Kim said, “December is typically a period of reduced trading volume due to institutions’ book closing and individual investors’ year-end major shareholder capital gains tax issues,” adding, “It is likely that the KOSPI’s sideways movement will persist until year-end.” NH Investment & Securities has set the expected KOSPI band for this week at 2430 to 2560.

The impact of the December FOMC is expected to be significant. Due to excessive expectations for interest rate cuts, volatility may increase around the FOMC meeting. Researcher Choi stated, “It is important to pay attention to the Fed’s dot plot revisions and its recent assessments of inflation and employment slowdown,” adding, “Recently, interest rates have been continuously falling, creating a perception that expectations for rate cuts next year are premature. The Fed may adopt a hawkish tone to prevent excessive rate cut expectations from stimulating expected inflation. In that case, stock prices could partially retrace.” Lee Kyungmin, a researcher at Daishin Securities, said, “Excessive expectations for rate cuts ahead of the December FOMC are a burden. Even if the Fed’s dot plot and inflation forecasts are revised downward, disappointment is inevitable. Therefore, after a short-term adjustment due to a retreat in rate cut expectations before the FOMC, stability is likely to be restored post-FOMC.”

There is an opinion that the market may enter a short-term volume digestion phase, so chasing purchases should be avoided. Researcher Lee explained, “Despite expectations for U.S. rate cuts, the market is hitting resistance levels. Although the KOSPI is holding up well, it is likely to enter a phase of volume digestion to relieve short-term overheating pressure,” adding, “We expect an opportunity to increase weighting around the 2450 level, but advise refraining from chasing purchases and maintaining a buy-on-dips strategy.”

Key events to watch this week include the release of the U.S. November Consumer Price Index (CPI) on the 12th, the U.S. November Producer Price Index (PPI) on the 13th, the December FOMC on the 14th, as well as U.S. November retail sales, China’s November industrial production, retail sales, fixed asset investment, and U.S. November industrial production on the 15th. Researcher Lee said, “The November core CPI, to be released on the 12th, is expected to rise 0.3% month-on-month, rebounding from October’s 0.2%, and remain steady at 4% year-on-year,” adding, “The November PPI is expected to increase 0.1% month-on-month, turning positive from October’s -0.5%.” He further noted, “With the slowdown in employment indicators halting, consumer sentiment rebounding, and inflation deceleration stabilizing, expectations for rate cuts are likely to retreat ahead of the December FOMC.”