Stocks rebound on hope stability will be prioritized over inflation

Electronic signboards at Hana Bank in central Seoul show Wednesday's market.[YONHAP]

Stocks bounced back Wednesday following signs of slowing inflation in the United States.

The Kospi rallied almost 2.0 percent intra-day trading on Wednesday, while the Kosdaq jumped 3.50 percent at its highest.

The rise in the Kospi was led by institutional investors, who purchased around 293 billion won ($225 million) of shares, while Kosdaq rally was driven by foreign investors purchasing 361 billion won of shares.

Shares of financial firms gained back some ground, with Hana Financial Group rising 2.31 percent, KB 1.24 percent, Shinhan 1.00 percent and Woori 0.82 percent.

A report from the United States Tuesday that inflation was falling and within expectations helped in driving a turnaround from Tuesday’s rout.
Inflation came in at 6.0 percent in February, down from 6.4 percent in January, according to the Labor Department on Tuesday. Core inflation, which excludes food and energy, was 5.5 percent, down from 5.6 percent a month earlier.

The falling inflation and the collapse of Silicon Valley Bank (SVB), which was the 16th largest U.S. lender, are adding to hopes that the U.S. Federal Reserve will slow rate increases.

A meeting of the rate-setting Federal Open Market Committee is scheduled to start on March 21.

Analysts at Goldman Sachs forecast the Fed to keep the rate steady at the meeting.

“Stabilizing financial markets in the short-run will be prioritized over stabilizing inflation in a mid-term, as the aftershocks of the SVB incident continues,” said James Huh, a chief economist at Samsung Securities, in a report on Wednesday.

“Sufficient liquidity is expected to be provided to the banking system but it will be difficult to expect the financial market to normalize ahead of the March FOMC that will take place in a week.”

Huh forecasts the Fed to keep the rate steady from an initial forecast of a 25 basis point increase.

FedWatch, which is run by the CME Group and forecasts rates using Fed Fund futures contract prices, put the chance of a quarter percentage point increase at more than 80 percent.

A slowdown or a pause by the Fed could give the Bank of Korea room to hold rates steady for the second consecutive time at its rate-setting meeting in April, according to Kim Ji-man, a senior analyst at Samsung Securities.

Concerns in the global financial sector are spreading as banks report weaknesses.

Credit Suisse on Tuesday revealed that it had identified “certain material weaknesses in our internal control over financial reporting” for the 2021 and 2022. They are related to a “failure to design and maintain an effective risk assessment process to identify and analyze the risk of material misstatements,” it said.

Crypto-friendly, New York-based Signature Bank was shut by regulators on Sunday, and California’s Silvergate announced its impending liquidation last week.

BY JIN MIN-JI [jin.minji@joongang.co.kr]