[Good Morning Stock Market] Expectations for a Soft Landing of the US Economy... KOSPI Expected to Start Steady

[Image source=Yonhap News]

On the 11th, the KOSPI is expected to start with a firm tone as optimism about a soft landing for the U.S. economy takes effect.

On the 8th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 36,247.87, up 130.49 points (0.36%) from the previous session. The Standard & Poor's (S&P) 500 index rose 18.78 points (0.41%) to 4,604.37, and the Nasdaq index closed at 14,403.97, up 63.98 points (0.45%) from the previous session.

The New York stock market closed higher on expectations that the U.S. economy could avoid a recession, supported by positive economic indicators. In particular, favorable results from the November employment report and the December University of Michigan consumer sentiment survey drove the market gains.

According to the U.S. Department of Labor, nonfarm payroll employment increased by 199,000 in November, exceeding the Wall Street Journal (WSJ) consensus forecast of 190,000. The unemployment rate fell 0.2 percentage points from 3.9% in October to 3.7% in November.

The University of Michigan's December consumer sentiment index recorded 69.4, improving from 60.4 in the previous month. The one-year expected inflation rate was 3.1%, and the five-year expected inflation rate was 2.8%, both significantly down from 4.5% and 3.2% respectively in the prior month.

Although employment remains generally robust, most employment indicators suggest a slowing labor market, leading the market to believe that the Federal Reserve (Fed) will no longer raise interest rates.

The Morgan Stanley Capital International (MSCI) Korea Index Exchange-Traded Fund (ETF) rose 0.6%, while the MSCI Emerging Markets Index ETF fell 0.4%. Eurex KOSPI 200 futures declined 0.01%. The KOSPI is expected to open in a firm range around 0.1% to 0.3%.

Han Ji-young, a researcher at Kiwoom Securities, analyzed, "The domestic stock market is expected to experience increased volatility depending on whether the Fed changes its interest rate path next year following the U.S. November Consumer Price Index (CPI) and December Federal Open Market Committee (FOMC) meetings, as well as the simultaneous expiration of futures and options and the potential increase in major shareholder capital gains tax."

In particular, the December FOMC is a key event. While there is little disagreement about the start of a rate-cutting cycle next year, the market's expectation of five to six significant rate cuts has created a gap with the Fed.

Researcher Han Ji-young forecasted, "The critical point for the FOMC will be whether there are changes in the dot plot, which showed a median federal funds rate forecast of 5.1% for 2024 at the September FOMC, rather than changes in economic growth or PCE forecasts." She added, "Since the simultaneous expiration of futures and options is scheduled immediately after the FOMC, the domestic market's supply-demand volatility is expected to be relatively higher compared to other markets throughout the latter half of the week. It is also important to note that the reason the domestic market, especially the KOSDAQ, expanded its gains in the afternoon session last Friday was due to supply-demand issues."