[Good Morning Stock Market] "US Long-Term Bond Yields Surge... Won-Dollar Exchange Rate Expected to Rise"

KOSPI Expected to Start Slightly Lower on the 1st Day

[Image source=Yonhap News]

The Korean stock market is expected to start slightly lower on the 1st. Although the US May Personal Consumption Expenditures (PCE) data met expectations, the significant rise in long-term bond yields is likely to weigh on the US stock market, influencing the Korean market.

On the 28th of last month (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 39,118.86, down 45.20 points (0.12%) from the previous session. The S&P 500 fell 22.39 points (0.41%) to 5,460.48, and the Nasdaq dropped 126.08 points (0.71%) to 17,732.60.

The market's main focus, the May PCE inflation, remained flat month-over-month as expected, marking the lowest level in six months. The core index, excluding food and energy, rose 0.1% month-over-month, in line with expectations. Both headline and core PCE inflation increased by 2.6% year-over-year, indicating a moderation in inflationary pressures. Notably, core PCE recorded its lowest level since March 2021. Additionally, the University of Michigan's one-year ahead inflation expectations eased from a preliminary 3.2% to 3.0%, which was viewed positively.

However, rising long-term bond yields dragged the indices down. This was attributed to the first US presidential debate, where former Republican President Donald Trump was perceived to have outperformed Democratic President Joe Biden.

Seokhwan Kim, a researcher at Mirae Asset Securities, noted, "Following the presidential debate, long-term bond yields rose by an average of 12 basis points (1bp = 0.01 percentage points), a 'bear steepening' that weighed on the market." He added, "The yield spread between the 10-year and 2-year US Treasury bonds jumped to -36bp, the highest level in seven weeks."

Investment sentiment toward risk assets in the Korean stock market is also expected to become uneasy. The MSCI Korea Index ETF rose 0.5%, and the MSCI Emerging Markets Index ETF increased by 0.2%. The 1-month NDF USD/KRW exchange rate is expected to open at 1,378 won, up 1 won from the previous day.

Researcher Kim analyzed, "Political uncertainties in the US and Europe are likely to cause instability in domestic market sentiment. However, depending on the export results to be announced early this month, sectoral differentiation is expected."