[Good Morning Stock Market] Hiring Increases but Earnings Remain Uncertain... Diverging US Economic Indicators Begin

Expectations for Increased Calls for Additional Stimulus Measures
Asian Currency Strength Likely Limited Until US Presidential Election

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Although the economic indicators in the United States, which had worsened due to the novel coronavirus infection (COVID-19), have recovered faster than expected, some indicators are showing a slowdown in the recovery trend. Small businesses' hiring plans have improved, but the actual performance to support this is expected to lag behind. Calls for additional economic stimulus measures are expected to grow stronger.

◆ Seungbin Jo, Researcher at Daishin Securities= The U.S. stock market, which had rebounded earlier last week, declined again after the Federal Open Market Committee (FOMC) meeting of the Federal Reserve. Although the Fed raised its economic growth forecast and reaffirmed its stance to maintain an accommodative monetary policy until the economy returns to its normal path, the FOMC was insufficient to turn the U.S. stock market bullish again as it remained at the level expected by the market.

Federal Reserve Chairman Jerome Powell emphasized the need for not only expansionary monetary policy but also additional fiscal policy after the FOMC. Although economic indicators worsened by COVID-19 have recovered faster than expected, some recent indicators are showing a slowdown in recovery speed, so calls for additional economic stimulus measures are expected to increase.

The U.S. weekly Johnson Redbook retail sales index for same-store sales announced on the 15th showed a 1.2% decrease compared to the previous year. This marks the second consecutive week of year-on-year decline. The decrease also widened compared to the previous week (-0.1%). The Bloomberg U.S. weekly consumer sentiment index, which had been recovering, also stalled with a 0.1 point (P) drop compared to the previous week. Given that U.S. employment indicators have not yet reached pre-COVID-19 levels, the termination of the unemployment benefits program is judged to have negatively affected consumer sentiment.

Within the National Federation of Independent Business (NFIB) small business optimism index, recent mixed signals have appeared in detailed items. Among the sub-items of the small business optimism index, the hiring plans index has improved for four consecutive months since the low point in April. Since the number of new job openings in the U.S. increased when the hiring plans index rose in the past, this is positive news for the recovery of the labor market. However, for companies to expand hiring, performance must support it. The sales expectations index within the NFIB small business optimism index has declined for two consecutive months compared to the previous month. Since the hiring plans index historically moved together with the sales expectations index, attention should be paid to the possibility of a slowdown in the U.S. labor market recovery going forward.

The continuous increase in permanently unemployed individuals is a burden. The number of unemployed in the U.S., which surged due to COVID-19, shifted to a decline in May as temporarily laid-off workers returned to their jobs. However, the number of permanently unemployed continues to rise. In particular, last month saw an increase in the month-on-month growth rate of permanently unemployed individuals.

It is judged that the recovery trend of economic indicators after the normalization of economic activities is still valid. However, recently, the possibility of a slowdown in the recovery speed of economic indicators is increasing. A strategy to prepare for a phase of increased volatility in the financial markets in the short term is necessary.

◆ Hongcheol Moon, Researcher at DB Financial Investment= On the 18th, the Korean won closed sharply down by 14.1 won to 1,160.2 won per dollar. This is the lowest level since January this year. This is interpreted as due to expectations of an economic rebound from improvements in China's retail sales and industrial production indicators. In addition to the Chinese government's tolerance policy for a stronger yuan, expectations for capital inflows due to the inclusion of Chinese government bonds in the World Government Bond Index (WGBI) were also effective. The increased interest of international foreign exchange investors in the yen flow following the inauguration of new Japanese Prime Minister Yoshihide Suga also played a role.

It is difficult to see this won appreciation as a trend. The sharply falling won-dollar exchange rate is expected to continue only until around the U.S. presidential election. After setting a box range of 1,150 to 1,160 won per dollar, a gradual upward trend is expected in the long term. Due to political reasons before the election, the relative strength of the yuan and won may proceed in a limited manner. A major change in trend is expected after the election, around the end of the year when more than 50% of COVID-19 vaccine distribution has been completed.

This is because China's economic rebound is moving toward a normalization phase. Considering the decrease in U.S. confirmed cases and steady progress in vaccine development, it is limited for China alone to continue high growth. While the euro's strength is winding down, it is also difficult for Asian currencies to continue strengthening in a rotational manner. Given the sensitive timing before the U.S. presidential election, the fact that China and Japan are not causing disturbances is also a basis. Once the election winner is confirmed, economic conflicts such as trade disputes between the U.S. and China may resume. Japan will also attempt contacts for the second phase of Abenomics.

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