Korean stocks decline as US interest rate hike bets grow

South Korean stocks fell on Wednesday, as investors assessed concerns surrounding the prospects for investment in artificial intelligence, while higher-than-expected US inflation data reinforced bets on raising US interest rates next month. On the other hand, the won rose against the dollar, while government bond yields rose.

The main KOSPI index fell 17.99 points, or 0.34 percent, to 5,221.14 points by 00:41 GMT, as foreign investors tended to sell, with net sales amounting to 92.8 billion won (about 69.3 million dollars).

The Korean stock market is characterized by a strong focus on technology and chip companies, which makes it more sensitive to concerns related to the valuations of artificial intelligence companies and the rise in US interest rates.

Samsung Electronics shares fell by 0.96 percent, while the shares of its competitor, SK Hynix, fell by 1.07 percent. On the other hand, the shares of the battery company “LG Energy Solutions” rose by 1.51 percent, while the shares of “Hyundai Motor” fell by 1.27 percent, and the shares of “Kia” stabilized.

US data showed that consumer prices rose more than expected in October, which strengthened expectations that the Federal Reserve would continue to raise interest rates during December.

Hours before the data was released, Federal Reserve Board member Christopher Waller said he intends to support a 25 basis point rate increase at the December 8-9 meeting, unless core consumer price inflation rises by 0.3 percent or more.

In other stock movements, steel maker Posco Holdings rose 1.66 percent, while pharmaceutical company Samsung Biologics fell 0.34 percent. Of the 899 shares traded, the prices of 599 shares rose, while 254 shares declined.

In the currency market, the won rose to 1,339.5 against the dollar, an increase of 0.37 percent compared to the close of the previous session at 1,344.5 won.

Since the beginning of the year, the KOSPI index has risen by 23.89 percent, while the won has strengthened its gains against the dollar by 7.5 percent.

In debt markets, three-year Treasury bond futures for December delivery fell by 0.19 points to 103.64 points. The three-year Korean government bond yield, the most widely traded, rose by 5.9 basis points to 3.685 percent, while the ten-year bond yield rose 4 basis points to 3.891 percent.

The dollar continued to rise in Asian trading, on Wednesday, approaching its highest levels in two weeks, supported by US inflation data that exceeded expectations, and hawkish statements by Federal Reserve officials that strengthened markets’ bets on raising interest rates next month.

The dollar index, which measures the performance of the US currency against a basket of six major currencies, rose by 0.1 percent to 102.30 points, approaching its highest level since October 29. The index rose 0.5 percent on Tuesday, following the release of data showing that consumer prices in the United States rose more than expected during October, driven by increased food and housing costs.

Chris Weston, head of research at the Pepperstone Group, said that interest rate markets are not only pricing in a new increase, but have begun to wonder how much tightening US monetary policy may eventually have to reach, considering that this debate carries greater repercussions for high-risk assets.

The dollar maintained its gains against major currencies during Asian trading, while the euro stabilized at $1.1163, and the British pound at $1.3346. The US currency also stabilized against the Japanese yen at 158.82 yen.

The Australian dollar rose 0.1 percent to $0.6875, slightly away from its lowest level in seven months, while the New Zealand dollar settled at $0.5606.

Statements by voting members of the Federal Reserve's interest rate setting committee, who expressed concern about the continued rise in inflation, reinforced expectations for further increases in interest rates, prompting traders to almost abandon bets on stabilizing interest rates at the next meeting, scheduled to conclude on December 9.

According to the CME Group's Fed Watch tool, interest rate futures reflect an 85 percent probability of an interest rate hike of 25 basis points next month, after markets completely ruled out the stabilization scenario, which was estimated at 16 percent one day ago.

In contrast, the markets are now pricing in a 15 percent possibility of a larger increase of 50 basis points, in addition to the possibility of raising interest again in January to exceed the 50 percent level.

In bond markets, the ten-year US Treasury bond yield rose 13.8 basis points to 4.996 percent.

As for the cryptocurrency market, Bitcoin fell 0.1 percent to $73,712.34, approaching its lowest levels in three months, while Ethereum rose 0.6 percent to $2,067.24.

Gold prices rose slightly, on Wednesday, after suffering sharp losses in the previous session, but the precious metal's gains remained limited due to US inflation data, which was higher than expected, and strengthened market bets on the Federal Reserve raising interest rates next month.

Gold rose in instant transactions by 0.3 percent to $4,044.56 per ounce by 04:51 GMT, after falling by about 3 percent, on Tuesday, to $4,017.21. US gold futures for December delivery also rose 0.6 percent to $4,052.50.

Matt Simpson, chief market analyst at Stone

Market bets on raising US interest rates jumped by 50 basis points in December, after data showed that inflation in the United States accelerated more than expected during October, coinciding with signals from monetary policy makers that they are ready to tighten policy at a greater pace.

According to the CME Group's Fed Watch tool, traders are now pricing in a 100 percent probability of an interest rate hike in December, compared to about 84 percent before the data was released.

Although gold is traditionally considered a hedge against inflation, rising interest rates increase the cost of holding the non-yielding metal, reducing its investment attractiveness.

Sony Kumari, an analyst at ANZ Bank, said that any positive developments in the Middle East may support gold in terms of its impact on inflation, but she added that macroeconomic factors in the near term do not appear to be favorable for the precious metal.

In a related context, Federal Reserve Vice Chair for Supervision Michelle Bowman, on Tuesday, joined a growing number of monetary policy makers who stressed that reducing inflation remains the central bank’s main priority.

Philadelphia Federal Reserve Bank President Anna Paulson said the central bank still has more interest rate increases to bring down high inflation levels.

In other precious metals markets, silver rose in spot transactions 2 percent to $52.52 per ounce, and palladium rose 1.8 percent to $1,042.87.