Oil, rates still unsettled… volatile trading likely to persist [Market Preview]

Korean equities on the 23rd are expected to extend a volatile, directionless run as geopolitical risks in the Middle East persist. Even if a short-term rebound attempt emerges, analysts see the upside as likely to remain limited rather than develop into a sustained uptrend.

On the 20th (local time), U.S. stocks in New York fell across the board, pressured by escalating Middle East tensions, a rise in international oil prices and diminished expectations for rate cuts.

The Dow Jones Industrial Average closed down 443.96 points (0.96%) at 45,577.47, while the S&P 500 fell 100.01 points (1.51%) to 6,506.48. The Nasdaq Composite also ended the session down 443.08 points (2.01%) at 21,647.61. Major indexes have now extended their decline for a fourth consecutive week. The Nasdaq and S&P 500 slipped below their 200-day moving averages, fueling concerns about damage to the longer-term trend.

International oil prices surged as military clashes between Iran and Israel intensified, stoking inflation concerns. As price pressures mounted, expectations spread that rates would not fall easily, pushing up U.S. Treasury yields. The expected timing of rate cuts by the Federal Reserve (Fed) was also pushed back significantly, amplifying uncertainty over monetary policy.

The problem is that uncertainty over both the Middle East situation and policy variables is expanding at the same time. Over the weekend as well, rhetoric and military tensions involving the U.S. and Iran shifted frequently.

In particular, U.S. President Donald Trump shifted from saying he would "talk but does not want a ceasefire" to stating that "achievement of the military operation’s objectives is imminent." He then changed his message again, saying, "If the Strait of Hormuz is not opened within 48 hours, we could strike Iranian power plants," adding to uncertainty with mixed signals.

Analysts say such external conditions are likely to weigh on Korean equities. The KOSPI has shown relatively solid performance during the recent rebound, but in phases where rising U.S. rates and equity weakness occur simultaneously, it has little choice but to be more vulnerable to external shocks. With no clear domestic events expected to drive the market this week, sensitivity to external factors such as war and interest rates is likely to increase further.

The direction of semiconductor shares is also seen as a key variable. Although Micron recently posted strong results, share-price volatility increased amid peak-out concerns. Analysts say whether earnings consensus estimates for Samsung Electronics and SK hynix are revised upward, along with the flow of foreign investor buying and selling, will influence the broader market.

Brokerages advised that a conservative approach is needed rather than aggressively expanding positions. Han Ji-young, a researcher at Kiwoom Securities, said, "Even during this week, war-related headlines could combine with noise around central bank policy shifts to inject short-term volatility into equities," adding, "Rather than reacting by switching positions one by one, it is appropriate to maintain at least a core position and wait, or respond with staggered buying if a sharp selloff appears."

Reporter Park Ju-yeon grumpy_cat@hankyung.com