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[News Focus] Trump, FOMC decisions unlikely to jolt market

Markets in South Korea were moderately mixed Thursday, while analysts here noted that dovish decisions in the United States would leave the market free of immediate impacts, citing the unlikelihood of a rate hike by the Korean central bank at least until the end of this year.

The top-tier stock market index took a breather Thursday. The Kospi closed at 2,546.36, down 0.4 percent from Wednesday’s close. This marked an end to the record run that lasted for the four previous days, which lifted the mark unprecedentedly above 2,500.

The sovereign bond market was bullish in Thursday closing. The five-year government bond yield was 23 basis points lower than Wednesday to 2.35 percent, while the 20-year bond yield dropped 51 basis points to 2.49 percent.

The Korean won was the strongest against the greenback in over three months. The dollar was trading at 1,114.4 won in Thursday session’s close, as the won strengthened by 0.1 won from Wednesday closing, marking the lowest since July 27 at 1,112.8 won. The won-dollar currency exchange rate dropped for four consecutive days.

Fed Governor Jerome Powell (AP-Yonhap)
Fed Governor Jerome Powell (AP-Yonhap)

These came after the US White House told reporters it was set to nominate dovish-centrist US Federal Reserve Governor Jerome Powell as the next Fed Chair to replace the incumbent Janet Yellen, according to a Wall Street Journal report. It came in line with Saturday reports that US President Donald Trump had already been leaning toward Powell instead of hawkish Stanford University economist John Taylor.

Also on Wednesday, US Federal Open Market Committee decided to hold the benchmark rate steady at the range of 1 percent to 1.25 percent, while signaling it is open to a rate hike in December with its meeting minutes carrying positive language on its national economy.

Analysts agreed the FOMC decision was “within expectation” and Trump‘s decision promised the global market a “continuity of US’ dovish stance,” while saying the BOK is unlikely to implement a rate hike this year. The BOK has maintained the record-low key rate at 1.25 percent for 16 consecutive months.

“The news on Trump’s decision is a favorable sign to local markets, as it represents continuity of the US Fed‘s dovish stance,” Seo Sang-young, an analyst at Kiwoom Securities, wrote on Thursday.

Analyst Jeon Byeong-ha of eBest Investment & Securities said the FOMC meeting minutes did not betray the expectations that no significant changes by the Fed would be made.

“The market is 100 percent ready to embrace the December rate hike, although the FOMC minutes did not openly hint at the December hike,” he wrote Thursday.

Jeon also projected the Bank of Korea would carry out a rate hike in the second quarter of 2018, citing an unfolding state policy to quell the rapid increase of household debt, in the report Thursday. Jeon expected the BOK to tolerate rate hike pressure from the markets until the US key rate becomes 50 basis points higher than that of Korea.

This echoed the projection of Yoon Chang-yong, chief economist at Shinhan Financial Investment, that the market pressure from the “normalization of Fed monetary policy” would not take shape until the second half of 2018, when the rate is expected to reach a neutral level.

By Son Ji-hyoung (