“We should not be fooled by indicators of slowing inflation.”
U.S. Federal Reserve Chairman Jerome Powell warned of the risk of a resurgence in inflation several times at the International Monetary Fund (IMF) conference on the 10th (local time). They made it clear that they would not hastily pivot (policy change) after looking at indicators of slowing inflation in recent months. Chairman Powell pointed out, “We know that the path to inflation in the 2% range is not guaranteed,” and added, “Inflation has repeatedly shown itself to be deceptive (appearing to go down and then rising).”
Previously, at the Federal Open Market Committee (FOMC) press conference on the 1st, Chairman Powell dismissed the possibility of an additional increase, saying, “As time passes, the effect of the forecast disappears,” regarding the September Summary of Economic Outlook (SEP) dot plot that predicted an additional increase. He said something like that. This is one of the reasons why the 10-year government bond interest rate, which exceeded 5% during the day, recently retreated to the 4.5% range. The market was filled with expectations that an interest rate cut was imminent.
However, Chairman Powell emphasized on the 10th that he would continue to leave open the possibility of raising interest rates. “The biggest mistake we can make is failing to control inflation,” he said, adding that the Fed does not want to tighten too much. “The Fed will consider how long to keep interest rates high.” He also emphasized, “I will not hesitate to raise interest rates further if necessary.” Although the base interest rate was recently frozen at 5.25-5.5% for two consecutive times, it has been confirmed that the card of raising the interest rate is still alive.
The market, which is still focused on the fact that the Fed interest rate hike is over, is paying attention to how far away the cut will be. The October Consumer Price Index (CPI) trend, which will be announced next week, is expected to affect the FOMC meeting to be held on the 12th and 13th of next month.
Chairman Powell’s ‘hawk’ remarks led to a sluggish bidding for US Treasury 30-year Treasury bonds on this day, raising concerns about weakening demand for Treasury bonds and raising Treasury yields. The interest rate on 10-year government bonds rose 0.14 percentage points to 4.624%, and the interest rate on 2-year government bonds exceeded 5% again for the first time since the 1st of this month.
Chairman Powell’s remarks, which left open the possibility of a rise in U.S. Treasury yields and further increases in the benchmark interest rate, led to a decline in the domestic stock market on the 10th. KOSPI, which rose to the 2,500 level due to the complete ban on short selling that was implemented on the 6th, lost 92.71 points in 4 days and barely maintained the 2,400 level.
KOSDAQ closed trading at 789.31, down 1.69%, falling below the 800 level. In particular, stocks related to rechargeable batteries continued to decline, giving up all of the sharp increase on the first day of the ban on short selling. Ecopro, a representative secondary battery stock, closed at 685,000 won, down 6.04% from the previous day. It is close to the closing price on the 3rd (637,000 won) before the ban on short selling. POSCO Holdings, LG Energy Solutions, and Ecopro BM also fell all at once, returning to the level before the short selling ban. On this day, the won-dollar exchange rate in the Seoul foreign exchange market closed at 1316.8 won, up 6.7 won from the previous day.
The securities industry believes that the domestic stock market may fall further, noting that the short selling balance has not significantly decreased even after the ban on short selling. The short selling balance on the 6th was 250.3 million shares, a decrease of only 4.23% from the trading day on the 3rd (261.36 million shares) just before the complete ban on short selling. This is interpreted to mean that those holding short sales have entered a wait-and-see attitude, expecting a further decline rather than paying back their stocks following the ban on short selling.
Meanwhile, foreign investors appeared to have withdrawn funds from the domestic stock market for three consecutive months until last month. According to the ‘International Financial and Foreign Exchange Market Trends Since October’ announced by the Bank of Korea on this day, there was a net outflow of $2.2 billion in foreign investment from the domestic stock market last month.
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Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.