[Good Morning Stock Market] "Gold Hits Record High Amid Stimulus Uncertainty and Weak Consumer Sentiment Indicators"

KOSPI Expected to Rise Amid Strong Metals and Commodities, Weak Dollar
Possibility of Sell-Off Due to Stimulus Uncertainty and Weak Consumer Sentiment Indicators

[Asia Economy Reporter Minji Lee] Gold has broken its all-time high for three consecutive trading days. This is interpreted as being influenced by the U.S. consumer sentiment index showing weaker-than-expected results and delays in the agreement on the economic stimulus package announced by the U.S. government.

◆ Seojung Hoon, Samsung Securities Researcher = Last night, the U.S. stock market closed lower due to the impact of weak earnings from major companies and poor consumer indicators. The S&P 500 fell 0.65% compared to the previous day, while the Dow Jones and Nasdaq fell 0.77% and 1.27%, respectively. August gold futures prices rose 0.7% from the previous day, closing at $1,944.60 per ounce.

The stock market decline was due to weak earnings from major companies. U.S. representative manufacturer 3M announced earnings below market expectations, falling about 5%. McDonald's also reported earnings down 30% year-over-year, showing significant damage from COVID-19. The negative consumer sentiment index also had an impact. The U.S. Conference Board's July consumer confidence index was 92.6, down 5.7 points from the previous month and significantly below the market expectation of 95. Meanwhile, the domestic stock market, which settled at 2200 the previous day, is expected to firmly establish a downside floor. Considering the continued weak dollar trend and the large volume of foreign selling so far, foreign buying is expected to continue.

◆ Jaeseon Lee, Hana Financial Investment Researcher = The combination of strong commodity prices and a weak dollar is favorable for emerging market (EM) stocks. This combination strengthens the inflow of foreign passive funds into EM. In particular, the KOSPI is showing the fastest profit improvement among EM stock markets.

In the commodity market, gold and silver have risen 9% and 37%, respectively, since July. Copper also increased by 6%. The simultaneous strength of safe-haven and risk asset groups within the commodity market is presumed to be due to the market betting simultaneously on demand in preparation for medium- to long-term inflation increases and prolonged negative real interest rates.

Factors increasing the possibility of inflation rise include the strong stimulus measures by the U.S. government and the Federal Reserve (Fed). It is believed that accumulated government fiscal deficits and the Fed's asset purchase scale could exert medium- to long-term inflationary pressure. On the other hand, expectations that the Fed will not change its stance on monetary policy in the short term support the simultaneous strength of safe-haven assets and commodities. COVID-19 cases are increasing in regions with high U.S. GDP contributions such as Texas, California, and Florida.

[Image source=Reuters Yonhap News]

In conclusion, if passive foreign fund inflows occur, large-cap stocks are expected to dominate the domestic stock market. By sector, the semiconductor industry led by Samsung Electronics is expected to benefit. Additionally, software sectors such as Kakao, NCSoft, and Naver underwent mid-month period adjustments due to profit-taking after gains. Since there was a foreign demand gap compared to profit improvements, additional upside potential remains.

◆ Sangyoung Seo, Kiwoom Securities Researcher = Although the Korean stock market saw a large-scale net purchase by foreigners concentrated the previous day, it is not optimistic whether this trend can continue. Attention should be paid to foreign investors' moves as computer parts maker AMD surged more than 10% after releasing strong earnings after market close, but considering the weak consumer sentiment index, the likelihood of sustained foreign net buying is low.

The weakened possibility of agreement on additional U.S. stimulus measures is also a concern. Although the White House claimed that negotiations with the Democrats were positive the previous day, the Democrats mentioned a large gap in opinions. Furthermore, with Senate Republican Leader McConnell making negative remarks about the negotiations, selling pressure is expected to appear in the domestic stock market.

This content was produced with the assistance of AI translation services.