"Difficult to Judge Economy Solely by US Indicators... Caution Against Increased Market Volatility"

Variables such as Hurricane and Strike Issues
Divergence from Market Predictions on Economic Indicators
Impact on Fed Monetary Policy

There is a forecast that volatility in the financial markets may increase for the time being due to uncertainties related to U.S. economic indicators and monetary policy. This is because recent major U.S. economic indicators have shown patterns different from predictions, and external variables such as hurricanes and strikes have made it difficult to assess the economy based solely on the indicators.

[Image source=AP Yonhap News]

Lee Ha-yeon, a researcher at Daishin Securities, stated in a report released on the 14th, "Recent major U.S. economic indicators have deviated from existing trends and shown results different from expectations, causing increased market volatility," and analyzed, "The weekly unemployment claims announced after the sharp rise in new employment in September increased significantly more than expected in both new and continuing claims. Even considering the impact of strikes at Boeing and Hurricane Helen, this is a substantial increase."

The U.S. Consumer Price Index (CPI) for September also showed results different from market expectations. While the decline in energy prices and the rise in used car prices were already anticipated by the market, food prices rose sharply. Additionally, core service prices, centered on transportation services, also saw an expanded increase, causing the inflation indicators to exceed market expectations. Regarding this, researcher Lee said, "Nevertheless, since the upward trend in housing costs has begun to slow, it is expected that the downward stabilization trend of U.S. inflation will continue."

However, the current environment, affected by hurricanes hitting the U.S. and strike issues, has made it difficult to assess the economy based solely on market indicators. Lee Ha-yeon noted, "This week, major real economy indicators such as September retail sales and industrial production in the U.S. are scheduled to be released. However, given the ongoing strike issues, climate factors, and Middle East geopolitical risks, it cannot be ruled out that results different from market expectations or existing trends may appear."

Accordingly, the indicators to be released in November may also reflect the aftermath of Hurricane Helen followed by the Milton landfall, potentially producing results different from market predictions.

Lee explained, "With frequent revisions to economic indicators centered on recent U.S. Bureau of Labor Statistics (BLS) employment reports lowering confidence in the data, combined with the influence of external variables, an environment has been created where it is difficult to assess the economy based solely on the indicators."

He also pointed out that considering the Federal Reserve's monetary policy decisions are based on economic indicators, such uncertainties related to economic indicators and monetary policy could increase volatility in the financial markets. This is because the speed of interest rate cuts could be determined depending on how the Fed evaluates data contaminated by temporary external variables and whether it reflects them in economic assessments.

He advised, "Although market attention will shift to earnings as the U.S. earnings season begins this week, caution is necessary as uncertainties related to U.S. economic indicators and monetary policy may increase financial market volatility for the time being."