[Good Morning Stock Market] European Stocks Rise on Bargain Buying and ECB Expectations... Positive for Korean Market as Well

Rising Close Despite Adverse Factors Like US-China Trade Friction
ECB Low Interest Rate Policy Expectations Act as Positive Factor
Positive for Domestic Market... However, Foreign Investor Supply May Have Negative Impact

Christine Lagarde, President of the European Central Bank
[Image source=Reuters Yonhap News]

[Asia Economy Reporter Minwoo Lee] While the US stock market was closed, European stock markets closed higher. Last week, the US stock market narrowed its losses, and expectations surrounding the European Central Bank (ECB) monetary policy meeting appeared to have played a role. This strength is expected to have a positive impact on the domestic stock market as well.

◆ Sangyoung Seo, Kiwoom Securities Researcher= On the 7th (local time), major European stock markets such as Germany (+2.01%), the UK (+2.39%), France (+1.79%), and Euro Stoxx 50 (+1.64%) closed higher. This was supported by inflows of bargain-hunting demand and expectations of continued low interest rates. Additionally, improvements in China’s import-export statistics and the weakness of the euro, which benefited export-related companies, were also positive factors.

The main issue is Brexit (the UK’s withdrawal from the European Union). Regarding Brexit, the EU and the UK have not been able to narrow differences on key issues such as fair competition and fisheries. The President of the European Commission urged compliance with the agreement reached last year, but the UK is prepared to accept a 'no-deal Brexit.'

Tensions between the US and China are also escalating. When the US Department of Defense mentioned sanctions against Chinese semiconductor company SMIC, China immediately protested. As a result, the Chinese stock markets plunged, with the Shanghai Composite down 1.87% and the tech-heavy Shenzhen Composite down 2.73%. However, the impact was limited as European stocks such as Infineon (+3.20%) showed strength.

Meanwhile, expectations have emerged that the ECB monetary policy meeting on the 10th will maintain a medium- to long-term low interest rate stance similar to the US Federal Reserve (Fed). As the euro weakened, automotive sectors such as Daimler (+3.73%) and Volkswagen (+4.74%) showed strength. Italy has launched an investigation into allegations of unauthorized collection of customer information related to cloud services by Apple, Google, and Dropbox. This drew attention as it is similar to the US government’s ban on TikTok. Despite negative factors, European stock markets showed strength amid rebound buying and expectations for the ECB, leading to stabilization in US stock futures during after-hours trading.

This is expected to have a positive effect on the domestic stock market as well. However, ongoing US-China tensions remain a burden. US President Donald Trump mentioned imposing large-scale high tariffs to cut dependence on China during his Labor Day speech. He also suggested that not trading with China would avoid losing billions of dollars, indicating an expansion of protectionism, which raises concerns. This could negatively affect foreign investor flows. Considering this, the domestic stock market is expected to start higher but may experience a process of digesting sell-offs due to foreign investor supply pressure.

◆ Jaeseon Lee, Hana Financial Investment Researcher= Since the 3rd, the US stock market has experienced a sharp correction centered on technology stocks. Although there was no clear catalyst, some indicators were already showing fatigue from the previous gains. The RSI (Relative Strength Index) of major tech stocks has consistently exceeded 70 points, considered the overbought zone, since mid-last month. The possibility of an agreement on additional stimulus measures by the Democrats and Republicans, which could lead to further liquidity-driven rallies, remains uncertain. Since liquidity has filled the gap between the expanded stock market and fundamentals after the COVID-19 pandemic, until new factors emerge to extend the liquidity-driven market, the leading stocks’ rally is likely to take a pause. The market’s focus going forward will be on the Federal Open Market Committee (FOMC) meeting scheduled for the 14th-15th. Attention should be paid to whether Chairman Jerome Powell will announce specific plans regarding inflation targeting.

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