Oil prices, interest rates soar as Wall Street's three major indexes fall for second straight day

Semiconductor shares hold up, but analysts warn of test for 6,600 support

The Kospi closing figure is displayed on a screen at the Hana Bank dealing room in Jung-gu on Tuesday. The index closed at 6,627.26, down 57.11 points, or 0.85 percent, from the previous session — its fourth consecutive decline since Thursday. [Yonhap]
The Kospi closing figure is displayed on a screen at the Hana Bank dealing room in Jung-gu on Tuesday. The index closed at 6,627.26, down 57.11 points, or 0.85 percent, from the previous session — its fourth consecutive decline since Thursday. [Yonhap]

The Kospi is expected to remain in a cautious, wait-and-see mode Wednesday, with investors watching closely whether the benchmark index can hold the 6,600 line.

While the recent string of losses has fueled talk of an oversold market, sentiment is likely to stay subdued amid a challenging macroeconomic backdrop and nerves ahead of the US Federal Reserve's policy rate decision, due in the early hours of Thursday Korean Standard Time.

According to Korea Exchange, the Kospi closed at 6,627.26 on Tuesday, down 57.11 points, or 0.85 percent, from the previous session.

Individual investors made net purchases of 831.9 billion won ($618 million) on the main board, but foreign and institutional investors sold a net 1.57 trillion won and 903.8 billion won, respectively, dragging the index lower. Foreign investors have now been net sellers on the Kospi for five consecutive sessions since Sept. 9.

Analysts attributed the decline to a confluence of factors: a sharp rise in US Treasury yields and global oil prices, and growing concern over a potential slowdown in AI spending. In particular, the yield on the benchmark 10-year US Treasury note broke above the psychologically significant 5 percent threshold, chilling investor sentiment. It was the first time the yield had topped 5 percent since October 2023.

Against this backdrop of external headwinds, Samsung Electronics fell 0.20 percent and SK hynix dropped 0.41 percent.

Trading activity also dried up sharply as sentiment deteriorated, with the total value of transactions on the main board falling to 16.25 trillion won — a decline of 5.34 trillion won from Tuesday.

"Early in the session, bargain buying in semiconductor stocks sparked a brief rebound, but with no bottom-up catalysts to sustain the move, fresh headwinds emerged — including clashes between Saudi Arabia and Houthi rebels — pushing oil prices higher, while the 10-year US Treasury yield broke back above 5 percent for the first time in roughly three years, dampening sentiment," said Kang Jin-hyeok, an analyst at Shinhan Securities.

He added that with caution building ahead of the Federal Open Market Committee meeting, foreign investors had been net sellers of a combined 3 trillion to 4 trillion won per day in spot and futures for four straight sessions.

The pressure from oil prices and bond yields carried over into overnight trading on Wall Street, where all three major indexes fell for a second consecutive day. The Dow Jones Industrial Average declined 0.63 percent, while the S&P 500 and the NASDAQ Composite fell 0.45 percent and 0.78 percent, respectively.

Oil supply concerns intensified after Saudi Arabia's east-west pipeline was shut down following Houthi drone strikes, crude loading operations at the Yanbu terminal on the Red Sea were halted, and three oil fields in Libya were taken offline.

November-delivery Brent crude futures settled up 2.90 percent at $108.75 a barrel, while October-delivery West Texas Intermediate rose 4.38 percent to $105.83 a barrel.

The 10-year US Treasury yield climbed as high as 5.041 percent, its highest level since July 2007.

AI-related stocks showed relative resilience on bargain hunting. Nvidia rose 0.57 percent and Micron gained 0.39 percent, while AMD climbed 2.19 percent.

Seo Sang-young, a managing director at Mirae Asset Securities, said that if the Fed signals its September rate hike is not the start of a sustained tightening cycle, or if Fed Chair Kevin Warsh confirms that inflation is being driven by temporary oil price effects, long-term yields could stabilize and the equity market could regain its footing as uncertainty eases.

The Kospi is expected to trade Wednesday caught between the perception that four straight sessions of losses have left the market oversold and lingering unease over the macro environment and the upcoming FOMC decision.

Market sentiment indicators are sending mixed signals. The MSCI Korea ETF edged up 0.15 percent, while the MSCI Emerging Markets ETF fell 0.35 percent. The Philadelphia Semiconductor Index rose 0.40 percent, but the KOSPI 200 overnight futures slipped 0.17 percent.

"Even as the consecutive declines this week have reinforced the view that the market is oversold, the rebound will likely be capped by the weight of rising US 10-year yields and oil prices stemming from macro uncertainty — keeping the market in a cautious, wait-and-see mode," said Han Ji-young, an analyst at Kiwoom Securities.

Lee Kyung-min, an analyst at Daishin Securities, said the Kospi "is showing greater sensitivity to negative news than positive developments, with rate-hike fears running high ahead of the September FOMC." He added, however, that given a rate hike is already priced in, current bond yield levels appear to be near a peak while the equity market is approaching a trough — making the prospect of the 6,600 line holding as support still viable.


yuni@heraldcorp.com