[Good Morning Stock Market] US Employment Data Spurs Additional Stimulus... "Expecting Further Inflows into Emerging Markets"

US November Nonfarm Payrolls Increase by 240,000... "Below Expectations"
Stimulates Need for Additional Stimulus Agreement, Driving Index Up

Won-Dollar Exchange Rate Plummets... "Support Level at 1050 Won Range"

[Asia Economy Reporter Minji Lee] The recently released U.S. employment data for November showed a significant slowdown, reigniting expectations for an additional stimulus package agreement. Stimulated by these expectations, all three major U.S. indices closed higher on the 4th (local time).

The KOSPI has been continuously reaching new highs, driven by a weaker dollar and foreign demand, and the passage of a stimulus package is expected to encourage capital inflows into emerging markets, including South Korea.

[Image source=Yonhap News]

◆ Youngjin Ahn, Researcher at SK Securities = The U.S. employment data for November is likely to prompt an agreement on fiscal policy, which has been stalled in Congress. On the 4th (local time), the U.S. Department of Labor announced that nonfarm payrolls increased by 245,000 in November, significantly below the expected 469,000.

Earlier released ADP employment data showed a similar level, indicating a weak employment market sentiment. The deterioration in employment data is interpreted as potentially prompting bipartisan cooperation in Congress for additional stimulus, which led the three major U.S. stock indices to reach record highs both intraday and at closing on that day.

News that negotiations between the Democrats and Republicans on the stimulus package are progressing smoothly has also emerged, sharply raising expectations for passage within the year. Currently, the U.S. stimulus package has been deadlocked for months due to intensified conflicts between the Democrats controlling the House and the Republicans controlling the Senate.

The Democrats have lowered their existing $2.2 trillion (2,413 trillion KRW) stimulus proposal to less than half, $908 billion (997 trillion KRW), to resume negotiations, and the Republicans are also positively considering this. The newly introduced stimulus package is expected to allocate $208 billion to support small and medium-sized enterprises and $180 billion to unemployment benefits, boosting the recovery of U.S. employment, which had been stagnant for some time. Additionally, $160 billion will be allocated to support local governments, helping regions that reimposed lockdowns after the second wave to recover economically more quickly.

Furthermore, the passage of such a stimulus package is expected to stimulate risk asset preference, leading to additional foreign capital inflows into emerging market (EM) stock markets, including South Korea.

◆ Kyuyun Jeon, Researcher at Hana Financial Investment = The KRW-USD exchange rate fell sharply, breaking the solid support level in the 1100 won range faster than expected. The Korean won appreciated about 1.95% against the dollar over the week, recording the largest appreciation among major Asian currencies. The closing price on the 4th was 1082.1 won. The U.S. dollar, which was searching for direction, turned weaker based on risk asset preference and stimulus expectations, leading to the exchange rate decline. South Korea’s October current account and other domestic economic indicators showed improvement, and foreign capital inflows into the stock market continued, resulting in won strength.

The U.S. dollar index has dropped to the 90-point level, clearly turning weaker. Discussions on the stimulus package are becoming more concrete, centered on bipartisan lawmakers in the U.S., and the Biden administration is likely to maintain an expansionary fiscal stance next year. The U.S. fiscal deficit relative to GDP widened from -4.8% at the end of last year to -14.9% in the third quarter of this year. Both the current account and fiscal deficits have expanded, strongly supporting a weaker dollar.

The USD-CNY exchange rate is also hovering near 6.5 yuan, with strong downward pressure. Overall, the fundamentals of the global foreign exchange market still support won strength. Although debates over won overvaluation continue, considering the recent downward trend, the support level for the KRW-USD exchange rate is expected to be around 1050 won. If the dollar’s weakness continues and the economic fundamentals of South Korea and China remain better than those of other countries, the current trend is expected to persist for the time being.

However, it should be noted that the sharp appreciation of major currencies, including the euro, as a counterbalance to the dollar’s weakness, may lead to accumulated fatigue regarding this trend.

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