This week (14–18), Korea's stock market is expected to see greater volatility depending on the outcome of the Federal Reserve's September Federal Open Market Committee (FOMC) and movements in international oil prices and U.S. Government Bonds yields.
With international oil prices surpassing $100 a barrel and the U.S. 10-year Government Bonds yield approaching 5%, the burden of high oil prices and high interest rates is rising at the same time. As major central bank policy meetings, including the FOMC and the Bank of Japan (BOJ), are lined up, uncertainty over the path of monetary policy is expected to grow.
The biggest event is the September FOMC scheduled for the 16th (local time). There is a possibility of a rate hike at this FOMC, which will be held early on the 17th Korea time. While inflation driven by demand pressures is slowing, Federal Reserve members could make policy decisions considering the upward pressure on energy prices and its spillover effects.
In the securities industry, analysts advised that attention should be paid to how the future rate path is presented in the dot plot and what guidance the Fed will provide on upcoming monetary policy. Kim Chan-hee, a researcher at Shinhan Investment & Securities, said, "As WTI has again topped $100, the possibility of a rate hike has increased," and noted, "It is necessary to keep a close eye on hints about the terminal rate in the dot plot."
Given that oil price gains have increased upside risks to inflation, if the Fed appears more hawkish than the market expects, longer-term U.S. interest rates could rise further, adding pressure on Korea's stock market. Depending on the FOMC outcome and whether the BOJ (scheduled for the 18th) raises rates, the direction of major currencies such as the dollar and the yen is also expected to diverge.
◇ Oil tops $100… "Supply shock is a monetary policy variable"
The biggest factor rattling global financial markets on the 7th–11th was international oil prices. As conflict in the Middle East dragged on and concerns about supply disruptions grew, WTI rose above $100 a barrel. The U.S. August Producer Price Index (PPI) also climbed 0.4% from the previous month, adding to price pressures. Core PPI rose only 0.2%, limiting demand-side price pressure, but some items linked to core Personal Consumption Expenditures (PCE) inflation, such as airfares, saw strong increases.
Last week the KOSPI recovered 7,000 points, but as the burden of rising international oil prices and U.S. Government Bonds yields grew, it closed around the 6,900 level.
Experts said that because Korea's stock market could swing widely this week depending on movements in oil and interest rates, investors should focus on sectors supported by earnings outlooks rather than chasing rallies.
Noh Dong-gil, a researcher at Shinhan Investment & Securities, said, "In Korea's stock market, rising interest rates can weigh on stocks by increasing the equity discount rate rather than through corporate earnings," and predicted, "With a W-shaped rebound more likely than a V-shaped one, the practical benefit of aggressive buying will be small."