[Market ING] KOSPI Recovers 3,200 Mark, Focus on U.S. CPI

KOSPI Weekly Outlook:
Projected Range Between 3,100 and 3,300
Focus on U.S. Inflation Data and Policy-Driven Sectors

The KOSPI has recovered the 3,200-point mark. As expectations for interest rate cuts rise, attention is focused on whether the stock market can break out of its current trading range. With a series of economic indicators set to be released ahead of the September Federal Open Market Committee (FOMC) meeting in the United States, the market's attention is expected to be concentrated on the U.S. inflation data to be announced this week.

Yonhap News

Last week, the KOSPI rose by 0.60%, while the KOSDAQ climbed by 1.82%. Both the KOSPI and KOSDAQ maintained a four-day winning streak. The KOSDAQ's gains were significantly larger due to heightened expectations of interest rate cuts. Kim Ji-won, a researcher at KB Securities, explained, "Last week, the slowdown in employment was confirmed, which increased expectations for rate cuts, but the gap between the KOSPI and KOSDAQ widened." She added, "Some are even raising the possibility of a 'big cut' (a 0.50 percentage point rate cut) in September, so it will be important to pay close attention to changes in the Federal Reserve's rate trajectory based on the employment report results and respond accordingly."

The possibility of a big cut is reemerging following the employment shock in the United States in August. On the 5th (local time), the U.S. Department of Labor announced that non-farm payrolls increased by 22,000 in August compared to the previous month. This figure is far below the 75,000 forecast by experts surveyed by Dow Jones. The unemployment rate rose from 4.2% in July to 4.3% in August, matching expert expectations. According to CME's FedWatch on the same day, the interest rate futures market reflected a 12% probability that the Fed will cut the benchmark rate by 50 basis points (1bp = 0.01 percentage point) at the FOMC meeting scheduled for the 16th and 17th. Until the previous day, the possibility of a big cut was not reflected in the market.

As a result, the market is expected to pay close attention to the U.S. inflation indices to be released this week. On the 10th, the U.S. Producer Price Index (PPI) for August will be announced, followed by the August Consumer Price Index (CPI) on the 11th. Lee Kyung-min, a researcher at Daishin Securities, commented, "The CPI to be released on the 11th is expected to show a 2.9% year-on-year increase, a slight uptick from the previous month, while the core CPI is expected to remain at a similar level of 3.1%." He added, "If inflation exceeds expectations, it will inevitably impact the medium- to long-term interest rate outlook. While a September rate cut is already considered a given, there are concerns that the dot plot could shift in a more hawkish (favoring monetary tightening) direction due to worries about the lag in corporate price pass-through." He further stated, "Employment and inflation indicators are key variables for monetary policy, and depending on how these indicators are interpreted, stock market volatility could increase."

With the start of the regular National Assembly session in September, attention should be paid to sectors that could benefit from policy expectations. Na Jeong-hwan, a researcher at NH Investment & Securities, said, "Expectations for amendments to the Commercial Act are growing with the start of the September regular National Assembly session, leading to a rebound in some holding company and securities stocks, and value stocks remain favored." He continued, "Given that amendments to the Commercial Act, such as treasury stock buybacks and cancellations, are scheduled to be discussed during the September session, we prefer the holding company and securities sectors. At the same time, given that government policy is focusing on new growth industries and the Fed's rate cut cycle is expected to begin in the second half of the year, attention should also be paid to the domestic artificial intelligence (AI) software sector." NH Investment & Securities presented a projected KOSPI band of 3,100 to 3,300 for this week.

Key events this week include the release of China's August export and import data on the 8th, the U.S. August PPI and China's August CPI and PPI on the 10th. On the 11th, the U.S. August CPI will be released, and the European Central Bank (ECB) will hold its monetary policy meeting. On the 12th, the University of Michigan's September consumer sentiment index for the U.S. will be announced.

Researcher Lee stated, "China's export and import results to be announced on the 8th, as well as the country's CPI and PPI on the 10th, are important indicators for assessing China's economic situation." He added, "If improvements in the deflationary environment are confirmed in import and price data, confidence in an economic recovery will increase."