"Relief over U.S. CPI coexists with hawkish caution…market direction after the holiday in focus" [Weekly Outlook]

Brokerages forecast that the KOSPI will extend its upswing after the Lunar New Year holiday (16–18). They say the market’s recent sharp volatility instead had the effect of pricing in pre-holiday uncertainty. As a result, analysts expect upward pressure—grounded in the KOSPI’s fundamentals (earnings strength)—to prove stronger.

According to the Korea Exchange on the 15th, the domestic stock market will be closed from the 16th to the 18th for the Lunar New Year holiday. U.S. markets will also be shut on the 16th (local time) for Presidents’ Day, with the New York Stock Exchange and Nasdaq closed.

Major events at home and abroad during that period are expected to be reflected on the 19th, when the domestic market reopens. Earlier, on the 13th, the U.S. Department of Labor said the consumer price index (CPI) for January rose 2.4% year on year. That was the lowest rate of increase in eight months since May last year.

Core CPI excluding volatile energy and food items rose 2.5%, marking the slowest increase in 4 years and 10 months since March 2021. It was up 0.3% month on month. The core CPI readings matched market expectations on both a year-on-year and month-on-month basis.

In the U.S., January’s CPI was assessed as remaining within a manageable range for inflation control, easing fears that the rate-cut cycle could end earlier than expected—concerns that had been highlighted by remarks from Federal Reserve Chair Jerome Powell and by the so-called Kevin Warsh effect as he has been cited as a potential next Fed chair.

The minutes from the January Federal Open Market Committee (FOMC) meeting, due on the 18th, are expected to offer insight into how policymakers view current labor-market conditions and inflation pressures during a period of potential leadership transition at the Fed.

If remarks from some participants in the minutes signal “conditional support” for future rate cuts or a tilt toward holding rates steady, it could dampen a stock market that has been pushing higher on artificial intelligence (AI) optimism.

Adding to that, recent speeches by officials with a hawkish (tightening-favoring) lean at the Fed have been raising investor anxiety ahead of the minutes.

Lorie Logan, president of the Federal Reserve Bank of Dallas, said in prepared remarks released ahead of an event in Austin, Texas on the 10th, “Over the next few months, we will be watching whether inflation comes down to target and whether the labor market remains stable,” adding, “If inflation converges to the target and the labor market is stable, the current stance of monetary policy is appropriate for the Fed to achieve its dual mandate, and we will reach the judgment that no further rate cuts are needed.”

Beth Hammack, president of the Federal Reserve Bank of Cleveland, also said the same day at an event in Columbus, Ohio, “Rather than trying to fine-tune the policy rate, it is better to be patient and assess the impact of recent rate cuts and watch how the economy evolves,” adding, “In my outlook, we can keep rates on hold for quite a long time.”

Experts expect that if uncertainty is cleared during the holiday, the KOSPI’s fundamentals will come back into focus and the index could again face renewed upward pressure. According to Daishin Securities, the KOSPI’s forward price-to-earnings ratio (PER) is currently around 9.6x, still in an undervalued range versus major global equity markets.

Lee Kyung-min, a researcher at Daishin Securities, said, “We expect the KOSPI’s uptrend to resume from late February to early March as the earnings season wraps up,” adding, “Semiconductors, defense and shipbuilding—leading sectors supported by earnings where valuation pressure has eased through rotation—are highly likely to resume gains after absorbing (profit-taking) supply.”

Noh Jeong-dong, Hankyung.com reporter dong2@hankyung.com