South Korea's stock market rebounded as expectations grew for a ceasefire between the United States and Iran. Now, observers say the U.S. Federal Reserve's Federal Open Market Committee (FOMC) meeting, set for early June 18 Korean time, will mark a turning point for the KOSPI.
According to the Korea Exchange (KRX) on Sunday, the KOSPI closed at 8,123.62 on Friday, up 359.67 points, or 4.63%, from the previous trading session. During the week of June 8-12, sidecars were triggered on every trading day in the KOSPI market except June 11. As market volatility expanded, the KOSPI200 Volatility Index, known as the "Korean fear gauge," surged to a record high of 91.94 intraday on Friday, maintaining elevated levels throughout last week.
The financial investment industry points to the U.S. interest rate path as the key variable that will determine the domestic market's direction this week. The recently released U.S. May Consumer Price Index (CPI) and Producer Price Index (PPI) largely met market expectations. The market assessed that core price pressure in both last month's CPI and PPI was relatively weak.
The market expects the Fed will not raise its policy rate, currently at the 3.50%-3.75% level, at the FOMC meeting. Rather than the rate freeze itself, attention is focused on the Fed's message regarding the future policy path, particularly the monetary policy stance that new Chairman Kevin Warsh will present at the press conference.
"The remaining task after the ceasefire is the June FOMC outcome," said Lee Kyung-min, an analyst at Daishin Securities. "Given that Chairman Warsh was nominated by U.S. President Donald Trump and this is his first FOMC meeting and press conference, there is a high possibility he will express a dovish stance favoring monetary easing rather than a hawkish one."
Na Jung-hwan, an analyst at NH Investment & Securities, said, "Since June 18 marks the first FOMC press conference chaired by Fed Chairman Kevin Warsh, the market will focus on Warsh's policy tone." He added, "However, since prices did not spike sharply in the trimmed mean Personal Consumption Expenditures (PCE) and core CPI that Warsh focuses on, the possibility of extreme hawkish remarks is low." Park Sang-hyun, an analyst at iM Securities, noted, "The key issue is how much Chairman Warsh can neutralize the hawkish voices within the Fed that are bound to grow louder at the June FOMC meeting."
Whether the United States and Iran will sign a memorandum of understanding (MOU) on the ceasefire is also a major market variable. If the agreement between the two countries is signed as scheduled, the appetite for risk assets is expected to expand further as geopolitical risk eases. In this case, international oil prices and exchange rates would stabilize, allowing the market to secure additional upward momentum.
Tensions rose again as Israel launched airstrikes on the southern outskirts of Beirut, the capital of Lebanon. However, the balance has tilted toward the possibility of an agreement after U.S. President Donald Trump called for restraint Saturday, saying, "This important process [the signing of the U.S.-Iran MOU] should not be disrupted." Trump stressed, "We are very close to an agreement that will bring peace to this region, including Lebanon," and "All parties must exercise restraint."
The Daishin Securities Research Center projected, "With the conclusion and signing of the U.S.-Iran ceasefire negotiations becoming visible, we expect risk appetite to recover through the downward stabilization of oil prices, interest rates and the dollar." It added, "Along with the second-quarter pre-earnings season, the KOSPI's valuation upside potential will expand." It continued, "If discord related to the ceasefire or expanded volatility around the FOMC emerges, it will present an opportunity to accumulate market leaders."
