As investors await the release of the U.S. Consumer Price Index (CPI) for July, global markets are exhibiting a cautious stance. Domestic markets are expected to be influenced by rising international oil prices and weakness in major U.S. tech stocks. However, the increase in the Philadelphia Semiconductor Index and ongoing demand for artificial intelligence (AI) infrastructure may limit downward pressure on the domestic market, which is also experiencing reduced volatility.
On August 11, U.S. stocks fell as caution grew ahead of the CPI announcement. The Dow Jones Industrial Average dropped 0.34% to close at 53,791.85. The S&P 500 fell 0.32% to 7,728.20, while the Nasdaq Composite declined 0.60% to finish at 26,445.45. In contrast, the Russell 2000 index, which focuses on small-cap stocks, rose by 0.32%.
Market sentiment was cautious ahead of the inflation data. Following disappointing employment figures last week, interest in the Federal Reserve's monetary policy trajectory has increased, making this CPI report a key variable for the upcoming Federal Open Market Committee (FOMC) meeting in September.
The consensus for the July CPI is a year-over-year increase of 3.4% for the headline figure and 2.5% for core inflation. Month-over-month, a rise of 0.1% for the headline and 0.2% for core inflation is anticipated. After a 0.4% decline in the headline CPI in June and a flat core CPI, a normalization of prices is expected for July.
Rising international oil prices pose a burden in terms of inflation and interest rates. Negotiations between the U.S. and Iran regarding the reopening of the Strait of Hormuz have shown little progress, leading West Texas Intermediate (WTI) crude to rise by $1.07 (1.30%) to $83.20 per barrel. Brent crude increased by $1.23 (1.40%) to $88.91.
The yield on the U.S. 10-year Treasury note fell by 1.8 basis points to 4.6883%, but remains at a high level. If oil prices continue to rise, concerns about future inflation may increase, limiting the potential for interest rate declines and putting pressure on risk assets.
According to Seo Sang-young, a researcher at Mirae Asset Securities, “This consumer price index could lead to changes in monetary policy, making it highly relevant for the short-term bond, foreign exchange, and stock markets. If a higher-than-expected core CPI is reported, it could reignite concerns about interest rate hikes, especially in light of recent inflation warnings from Fed officials.”
He added, “Conversely, if lower-than-expected inflation is confirmed, it could ease interest rate pressures. However, the persistence of high international oil prices suggests that concerns about future inflation will remain, potentially limiting stock market gains.”
Despite the declines in the U.S. stock market, the relatively small drop is seen as a positive sign. While major tech stocks struggled, the Russell 2000 index rose, and the Philadelphia Semiconductor Index increased by 0.87%. Notably, Micron Technology gained 0.87%, and AMD rose by 1.01%. The American Depositary Receipts (ADRs) of SK Hynix, closely tied to the domestic market, surged by 4.70%.
The rise in SK Hynix ADRs was bolstered by news of increased stakes in Kioxia and the reopening of its factory in Dalian, China. The expectation that SK Hynix could become the largest shareholder in Kioxia, thereby expanding its influence in the global NAND market, along with the resumption of construction and investment at its subsidiary Solidigm's Dalian plant, was positively received.
Investment demand for AI infrastructure remains strong. Nvidia has formalized a financial consortium for AI infrastructure worth up to $500 billion, involving firms such as Apollo Global Management, Blackstone, BlackRock, Brookfield Asset Management, Goldman Sachs, and KKR. This indicates that AI investments are expanding beyond semiconductors and AI model development to include data center and power grid construction, highlighting the importance of large-scale funding.
While Nvidia's stock dipped by 0.02%, related power infrastructure stocks performed well. Constellation Energy rose by 2.93%, Eaton by 3.22%, and Vertiv Holdings by 4.34%. Oclaro and NuScale Power also saw increases of 5.66% and 7.73%, respectively. The growing demand for power due to the expansion of AI data centers is driving investment momentum in related sectors.
AI-related companies such as CoreWeave and Supermicro have shown strong performance in after-hours trading, with gains exceeding 13% and 6%, respectively, following their earnings reports, which is a favorable factor for the domestic AI and semiconductor value chain.
Additionally, the reduction in volatility in the KOSPI is seen as a positive development. According to Kiwoom Securities, the VKOSPI, which indicates future expected volatility for the KOSPI, averaged around 85 points in June and July, peaking at 95 points during a sharp decline at the end of June. However, it has dropped to the 70-point range in August, reaching a low of 61 points on August 11, the lowest since May 8.
Han Ji-young, a researcher at Kiwoom Securities, noted, “While a VKOSPI in the 60-point range is still relatively high, the recent decline in VKOSPI during the market recovery suggests that the supply stress that led to the volatility spike in July is easing. It is important to recognize that abnormal volatility is normalizing ahead of stock prices.”
* This article has been translated by AI.
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