[Good Morning Market] Trump-Driven Trade Tensions Expected to Lead KOSPI Lower at the Open

New York Stock Market Plunges on "Greenland Tariff" Fears
Potential for Rebound Hinges on Davos Speech and M7 Earnings

On January 21, the Korean stock market is expected to open lower, reflecting the sharp decline in the U.S. New York stock market overnight due to fears of a U.S.-Europe trade war. Amid rapidly deteriorating investor sentiment triggered by the geopolitical tensions initiated by U.S. President Donald Trump, high volatility in supply and demand is expected as risk-averse sell-offs and bargain hunting are likely to clash during the session.

On January 20 (local time), the New York stock market was shaken by the combined impact of escalating conflicts between the U.S. and Europe and a sharp rise in Japanese government bond yields. The Dow Jones Industrial Average closed at 48,488.65, down 870.68 points (1.76%) from the previous session. The S&P 500 Index fell by 143.09 points (2.06%) to 6,796.91, marking its largest drop in three months since October last year, while the tech-heavy Nasdaq Index also plummeted by 561.065 points (2.39%) to close at 22,954.322.

Tensions escalated as President Trump announced plans to impose a "Greenland tariff" on eight European countries, including Denmark, prompting the European Union (EU) to signal possible retaliation. Amid speculation among investors that the dispute could escalate into a U.S.-Europe trade war, the "Sell America" phenomenon spread again across global financial markets. In fact, Denmark’s pension fund announced that it sold $31 million worth of U.S. Treasury bonds on the day. The surge in Japanese government bond yields further contributed to simultaneous weakness in stocks, bonds, and the dollar.

This shock originating from the U.S. is also expected to put downward pressure on the Korean stock market today. The global risk-off sentiment has intensified due to President Trump’s tariff remarks, and the recent sharp rise in the domestic market has heightened short-term fatigue, which could act as a burden. Han Ji-young, a researcher at Kiwoom Securities, forecasted, "For the next two trading days, the market is likely to be exposed to Trump-induced price volatility."

However, some analysts believe there is a possibility of a rebound, as the likelihood of a full-scale exodus from U.S. assets remains low. The researcher noted, "Europe also faces loss risks if it sells U.S. assets, and there is still room for negotiation before the scheduled tariff implementation date on the first of next month."

The market is paying close attention to President Trump’s upcoming speech at the Davos Forum scheduled for 10:30 p.m. on January 22 (Korean time), as well as the earnings season for major technology companies known as the "Magnificent 7" (Nvidia, Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, M7), which will begin in earnest next week. Analysts suggest that if uncertainties are resolved during President Trump’s speech or if concerns about artificial intelligence (AI) profitability are alleviated through the M7 earnings reports, a shift in market sentiment could be expected.