Oil prices surge amid 5% interest rate bomb…7,000-point KOSPI collapses as FOMC decides the direction

The KOSPI was held back by rising international oil prices and higher U.S. interest rates. Market caution is also affecting the KOSPI ahead of the release of U.S. consumer price index (CPI) data and the September Federal Open Market Committee (FOMC) meeting. With growing uncertainty over external factors, attention turns to whether the KOSPI can rise above 7,000 again.

As of 11:18 a.m. on the 11th, the KOSPI was down 153.61 points (2.18%) from the previous day at 6,880.31. The KOSPI opened with a decline of more than 3% and fell below the 7,000-point level on this day.

The factors pulling down the KOSPI index were rising international oil prices and higher long-term U.S. Treasury yields. As tensions between the United States and Iran intensified, international oil prices broke through $100 per barrel. On the 9th (local time), the October WTI (West Texas Intermediate) crude oil futures contract at the New York Mercantile Exchange closed trading at $102.48 per barrel, up $6.43 (6.69%) from the previous day. November Brent crude rose 6.34% to $107.63. Both oil types reached their highest levels since May 19.

On the 9th (local time), the U.S. 10-year Treasury yield recorded 4.9610%, approaching the 5th% threshold. Researcher Jun-ho Byun of IBK Investment & Securities explained, "The U.S. 10-year Treasury yield rose overnight to 4.97%, nearing the high of 4.99% set in October 2023. The prospect of breaking the previous record and exceeding 5% is likely to have a significant negative psychological impact on the stock market."

Market caution is also increasing ahead of the release of U.S. August CPI data tonight (local time) on the 11th and the FOMC meeting scheduled for the 15th–16. Experts in the financial investment industry predicted that as external uncertainties continue to shake the market, the direction of the stock market could change depending on the outcomes of the CPI and FOMC.

Researcher Ji-young Han of Kiwoom Securities stated, "With a challenging external environment, signs of a turnaround may be found in August's CPI data. Even if the CPI meets consensus estimates, it could provide some relief to the stock market." She added, "Given that earnings strength led by leading stocks such as AI (artificial intelligence) semiconductors remains solid, downward rigidity in the stock market is expected to persist even during macro-driven volatile periods from August's CPI through September's FOMC."

Attention focuses on whether the Federal Reserve (Fed) will raise its base rate at the September FOMC meeting. Last month, Fed Chair Kevin Warsh made hawkish remarks at the Jackson Hole meeting, raising the probability of a September rate hike to around 60% (based on FedWatch). Even if the Fed does not raise the base rate at the September FOMC, there remains a possibility of a rate increase within the year. The probability of a rate hike this year is approximately 85%. Additionally, what message Chair Warsh conveys during his press conference will also be closely watched.

However, it is positive that AI momentum from OpenAI's upcoming "GPT-6 Astra" launch remains intact and that corporate earnings continue to grow.

FICC Research Head Kyung-min Lee of Daishin Securities said, "The gap between stock market fundamentals and valuations remains large." He forecasted, "In a scenario where the semiconductor sector is led by AI momentum, valuation normalization will likely occur through rotation into undervalued sectors relative to earnings."

Researcher Dae-seung Kang of SK Securities also noted, "Profit forecasts for Korean semiconductor companies for this year and next remain on a solid trajectory. While the KOSPI index ceiling is limited to 7,500, given that earnings momentum remains strong, semiconductors remain attractive from a relative investment perspective."