Rising Risks from the Middle East... Next Week's Focus on US Inflation and Korean Monetary Policy

Kiwoom Securities stated on the 4th that attention should be paid next week to geopolitical risks originating from the Middle East, U.S. inflation trends, and South Korea's monetary policy.

Researcher Kim Yumi analyzed, "This week, geopolitical risks from the Middle East have expanded, strengthening the preference for safe assets within financial markets. In particular, after U.S. President Biden mentioned the possibility of Israel's retaliatory attacks against Iran, international oil prices surged sharply, heightening related concerns."

She added, "Since geopolitical risks from the Middle East are strongly political issues, it is difficult to make easy predictions. Although the possibility of the conflict escalating into a broader war involving Western countries is currently seen as low, localized frictions within the Middle East could intermittently trigger volatility in international oil prices and financial market instability for the time being."

Next week, the U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) data are scheduled to be released on the 10th and 11th (local time), respectively. The market expects the slowdown in consumer price inflation to continue, mainly driven by energy prices. For the headline September CPI, it is forecasted to slow to 0.1% month-on-month and 2.3% year-on-year, while the core CPI is expected to record 0.2% month-on-month and 3.2% year-on-year.

Researcher Kim stated, "Considering that the average international oil price (WTI) in October last year was $85.5 per barrel, if oil prices do not rise significantly above this level in October this year, the impact of Middle East geopolitical risks on inflation may be short-lived. However, given that volatility in international oil prices could temporarily increase due to Middle East geopolitical risks, raising inflation concerns, uncertainty regarding the Federal Reserve's terminal interest rate level may grow, causing major price variables to show unstable trends for the time being."

On the 11th (Korean time) next week, the Bank of Korea's Monetary Policy Committee meeting for October is also scheduled to take place.

Researcher Kim predicted, "The base interest rate is expected to be lowered by 25 basis points (bp, 0.01 percentage points) to 3.25%. Although there are recent concerns about rising real estate prices and household debt, domestic demand remains sluggish, and since the Fed has implemented a significant rate cut, a 25bp rate cut in South Korea also seems possible."