This week (the 18th–21st), the domestic stock market is expected to remain in wait-and-see mode, checking the Federal Reserve's monetary policy direction and geopolitical risks, even as relief grows on easing inflation concerns.
Wariness about price increases, cited as a potential risk in the market, has eased somewhat, but a series of events that could stir rates are lined up, including the release of the Federal Open Market Committee (FOMC) minutes and U.S. Government Bonds auctions.
The U.S. consumer price index (CPI) for July, released last week, rose 3.4% from a year earlier, meeting market expectations. The producer price index (PPI) also showed a stable trend, further lowering the market's inflation worries. That reduced the burden of additional tightening by the Fed.
However, experts advise that it is premature to completely set aside caution about monetary tightening. The "July FOMC minutes," to be released on the 19th U.S. local time, appear likely to be a key watershed for this week's stock market.
The minutes are expected to reveal the Fed's internal members' assessments of inflation and the economy, along with the strength of the minority opinions favoring rate hikes. Researcher Kim Yumi Kiwoom Securities(039490) said, "It is necessary to check differences among Fed members on the inflation and economic outlook through the July FOMC minutes."
If the minutes confirm a strong hawkish (preference for monetary tightening) stance, it could act as upward pressure on Government Bonds yields.
Supply-demand and Government Bonds market variables also remain. Depending on the results of the $16.0 billion U.S. 20-year Treasury auction scheduled for the 20th, market interest rates could be affected. If weak demand is confirmed again following last month's auction (stop-out yield 5.163%, bid-to-cover 2.64), observers say it could lead to higher Government Bonds yields and cap the stock market's upside.
In the foreign exchange market, the downside support for the won-dollar rate is expected to be tested. Recently, the won-dollar rate fell to the 1,417-won level on weaker foreign selling and inflows tied to SK hynix American depositary receipts (ADR).
However, the securities industry sees weak new momentum to drive a further decline in the won-dollar rate.
Choi Gwang-hyeok, a researcher at LS Securities, said, "The recent drop in the exchange rate stems from supply-demand factors, and the downward trend is losing steam," adding, "For the rate to fall below the current level, new momentum is needed, and in the short term it will likely seek a third-quarter downside at the current level."
Volatility in international oil prices stemming from Middle East–related geopolitical uncertainty, such as stalled U.S.-Iran talks, is also cited as a major variable for stocks. Researcher Junghyun Kim at Kiwoom Securities said, "Geopolitical uncertainty from the Middle East remains a key variable for inflation," adding, "If further escalation is limited and the disinflation trend holds, the Fed will have more room to keep rates on hold and wait." Kim added, "However, risk factors from oil price volatility must continue to be monitored."
Brokerages recommend maintaining a conservative approach for the time being while checking external events and key economic data releases.
This week, China's July industrial production and retail sales on the 17th, U.S. July industrial production on the 18th, the eurozone's final July CPI on the 19th, and preliminary August S&P Global U.S. composite purchasing managers' index (PMI) for major countries on the 21st are scheduled for release.