[Good Morning Market] Market Focuses on Powell's Speech and Yen-Yuan... "KOSPI Expected to Show Volatile Trends"

Han Ji-young Kiwoom Securities Researcher
Powell Expected to Comment on Preventing and Responding to Recession
Yen Strengthens... Asian Markets Volatility Rises

[Image source=Yonhap News]

The Korean stock market is expected to experience volatility on the 30th. Following the mixed closing of the U.S. stock market on the 27th, remarks by Jerome Powell, Chair of the Federal Reserve (Fed), are scheduled, and the market is likely to be influenced by the U.S. September employment data and the domestic market holiday.

On the 27th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 42,313.00, up 137.89 points (0.33%) from the previous session. The S&P 500 index fell 7.20 points (0.13%) to 5,738.17, and the Nasdaq Composite index dropped 70.70 points (0.39%) to 18,119.59. The Dow reached an intraday high of 42,628.32, setting a new all-time record that day as well.

The U.S. stock market closed mixed amid easing August Personal Consumption Expenditures (PCE) inflation and strong September consumer sentiment, but concerns over high stock valuations and yen strength persisted. September inflation is also expected to continue providing justification for the Fed's rate cuts. The September Consumer Price Index (CPI), scheduled for release in October, is projected by the Cleveland Federal Reserve’s inflation model to show headline and core inflation at 2.25% (August 2.5%) and 3.31% (September 3.2%), respectively.

The market is expected to closely watch key economic indicators such as the Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) and September employment data during the week. These two indicators have been catalysts spreading recession narratives in the stock market at the beginning of each month over the past two months.

The key issue is the extent of price adjustment the stock market will undergo if a shock is recorded. Intuitively, there is a high possibility of increased stock price volatility, but attention should be paid to the fact that, compared to one to two months ago, the likelihood of entering a recession is decreasing as economic momentum improves according to the economic surprise index as time passes.

In particular, the market is focusing on Chair Powell’s remarks scheduled for the 30th. It is expected that he will emphasize a preemptive response aimed at preventing a recession. Even if the September ISM data and employment shock released on the 1st materialize, the intensity and duration of stock price adjustments are expected to be milder and shorter than before.

Han Ji-young, a researcher at Kiwoom Securities, pointed to the yen-dollar exchange rate as a macro factor that could cause noise in the stock market. This is because Shigeru Ishiba, who is favorable to interest rate hikes, was elected as the next president of Japan’s Liberal Democratic Party last Friday. Researcher Han said, "Following his election news, the yen-dollar exchange rate quickly fell from 146 yen to the 142 yen level, indicating yen strength. As a result, on the 27th, Japan’s Nikkei futures plunged about 4.7%." He added, "Although the yen-carry trade liquidation narrative has weakened compared to before, similar to a recession, the sharp drop in Nikkei futures may cause temporary volatility spikes in major Asian markets such as Japan and Korea immediately after the market opens on the 30th."