Amid declining consumer sentiment and surging inflation in the U.S., prolonged geopolitical risks have dampened expectations for interest rate cuts and raised fears of rate hikes, showing signs of stagflation.
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The U.S. stock market, which closed yesterday, saw an overall decline, with all three major indices closing lower. Key factors were falling consumer sentiment, persistent inflation, and soaring interest rates. These complex factors led to the decline in U.S. stock indices.
Long-term bond yields in major countries, including the U.S., France, Germany, and the U.K., all reached their highest levels since the financial crisis. This carries various implications for global financial markets and could significantly impact future economic conditions.
The main reason for the current soaring interest rates is the increased likelihood that geopolitical risks will not end but will drag on for a very long time. This suggests that international instability is directly impacting financial markets.
Scafesant mentioned that unprecedented economic isolation measures would be applied to a certain country and asked to pay attention to further announcements next week. In addition, U.S. Defense Secretary Pete Hexes warned that the U.S. could indefinitely blockade the waters near Iran, which is interpreted as a move towards a complete blockade.
It can be interpreted that negotiations between the U.S. and Iran did not proceed well, and the Strait of Hormuz issue remains unresolved. With continued tensions in the Hormuz and Red Sea areas, inflation concerns persist.
Yemen's Houthi rebels attacked Saudi Arabia's oil facilities, and Saudi Arabia reportedly responded militarily. Also, in the Strait of Hormuz, the UAE state oil company Abu Dhabi National Oil Company reported that two of its vessels were attacked while passing through the Strait of Hormuz.
As these geopolitical issues remain unresolved and continue, concerns about inflation persist.
Due to geopolitical issues, defense stocks in the U.S. stock market saw significant gains. While indices fell, semiconductor stocks also dropped, largely because Broadcom recorded a steep decline of nearly 6%. Software-related stocks such as Palantir and Oracle also widened their losses. However, memory-related companies like Micron Technology, SanDisk, Seagate, Western Digital, and AMD saw significant gains.
The fact that memory-related stocks showed strength despite the semiconductor index falling can be interpreted as some comfort for the Korean stock market.
Consumer sentiment indicators from the University of Michigan were released, showing that the assessment index, sentiment index, and expectation index all fell significantly.
U.S. retail sales recorded -0.6% month-over-month, and core retail sales also recorded a -0.3% month-over-month decline.
Consumption plays the largest role in supporting the U.S. economy, accounting for about 70%. This consumption is currently showing a declining trend.
With consumption declining and the economy slowing, interest rates should be lowered. However, geopolitical risks have emerged, creating an atmosphere where oil prices seem to continue soaring, leading to a situation where interest rates keep rising. This clash of conflicting factors increases uncertainty in financial markets.
Long-term bond yields in major developed countries are at their highest levels since the 2017-18 financial crisis. This also demonstrates that currency values are declining.
Korea is currently experiencing a semiconductor AI boom, particularly in memory semiconductors, making it somewhat an exception compared to other countries. Korea is highly likely to raise its benchmark interest rate, and with these developments, the possibility of continued currency strength is very high.
The snapshot of the U.S. market today can be summarized as showing a form of stagflation. This phenomenon of slowing economic growth and high inflation occurring simultaneously further deepens the instability of financial markets.
In a situation like stagflation, one of the only ways out is the AI industry. From this perspective, Korea can be explained as somewhat sidestepping this situation where interest rates are rising, global finance is unbalanced, and there is a sense of precariousness. The AI industry boom is having a positive impact on the Korean economy.
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