[Good Morning Market] Eyes on April FOMC... Apple and Tesla Earnings Announcement

Volatility Increases Following Earnings of Tesla, Apple, etc.
Short Selling Resumes in May... Foreign Investors Expected to Be Attracted to Korea

[Asia Economy Reporter Ji Yeon-jin] Global stock markets are focused on the earnings announcements of major overseas technology companies and the U.S. Federal Open Market Committee (FOMC) scheduled for the 27th-28th (local time). In particular, the domestic stock market, which recently hit a new high on the KOSPI and maintained a flat trend last week, tends to synchronize with the investment sentiment of overseas technology sectors such as Apple and Tesla, raising expectations that the price movements of U.S. tech stocks could be transmitted to the domestic market.

◆ Yumi Kim, Kiwoom Securities Researcher = Factors affecting the domestic stock market this week include the April FOMC, the lifting of the domestic short-selling ban, U.S. tax hike controversies, and earnings announcements from major domestic and international companies such as Apple and SK Hynix. If hints of tapering (quantitative easing reduction) appear at the April FOMC, attention should be paid to increased volatility. Although the market is focusing on the impact of the resumption of short-selling on the 3rd of next month, it is expected to have little influence on the overall market direction.

The tax hike and related controversies aimed at funding the Biden administration's infrastructure investments will inevitably cause noise, but the continued earnings growth cycle of major companies in the U.S. and Korea is expected to support the market's downside. The factor that could add short-term downward pressure on the market is the uncertainty surrounding U.S. tax hikes. Tax hikes have been a material continuously exposed to the market, and considering tax resistance, aggressive rate increases are expected to be difficult. However, since both the U.S. and Korean stock markets currently face short-term index level burdens, tax hike uncertainties are expected to stimulate profit-taking pressure among market participants.

This week is the biggest week of the Q1 earnings season this year. Earnings announcements are scheduled from major large-cap tech stocks such as Apple, Microsoft, Facebook, as well as representative companies from various sectors including Tesla, UPS, Boeing, and Mastercard. Depending on the results, volatility may increase, and sector- and stock-specific differentiated market trends are expected. Overseas companies expected to have the greatest impact on the domestic stock market can be divided into tech stocks (Apple, AMD, Tesla, etc.) and cyclical stocks. Tech stocks have the largest weight in the domestic market and tend to synchronize investment sentiment. Attention should be paid to U.S. consumer-related cyclical stocks such as UPS, Shopify, Mastercard, and Amazon, as Korean export demand to the U.S. may vary depending on U.S. consumer trends.

◆ Namjoong Moon, Daishin Securities Researcher = A problem arising from the rapid recovery of the global economy this year is the growing perception gap between central banks and market participants regarding the boundary between recovery and overheating. The issue is that market participants, not central banks, have started worrying about exit strategies first. As the economic situation improves to pre-COVID-19 pandemic levels, early tightening possibilities based on past learning effects have begun to dominate the market, and with the Bank of Canada starting asset purchase tapering from the 26th, attention is increasingly focused on what stance the Fed will take at the April FOMC held on the 27th-28th.

The normalization of monetary policy proceeds in the order of tapering mention, tapering implementation, quantitative easing termination, and base interest rate hikes. This process occurs at a pace that does not hinder economic growth when confidence in economic strength is supported by improved employment and inflation due to economic normalization. Canada, which began tapering on the 26th, was the first among G7 countries to do so based on the improving economic situation this year (GDP growth rate revised from 4.0% to 5.9%) and economic activity participation rates recovering to pre-pandemic levels. However, given Canada's economic size and total population ranking 10th and 38th globally respectively, its monetary policy has limitations in influencing U.S. monetary policy.

At this point, it is too early for the Fed to send a message indicating a faster-than-expected shift to a tightening stance as market concerns about tightening suggest, so the impact on the stock market is inevitably limited. The market currently expects the Fed's tapering and base rate hikes to occur in the first and second halves of 2022 respectively, focusing on timing, but the essence is that monetary policy normalization will not be implemented this year. Since the correlation between tightening and the stock market is low this year, the upward phase of the stock market in Q2 is expected to continue.

◆ Jung-hoon Seo, Samsung Securities Researcher = Volatility embedded in the financial market has decreased. The VIX, the volatility index of the U.S. S&P 500, fell below the 20-point level for the first time in over a year, and the VKOSPI of the KOSPI is following a similar trajectory. Compared to the trading volume in the cryptocurrency market, the gap appears even clearer. However, the current reduction in volatility means that market uncertainty has decreased. It is the result of a consensus forming in the market about economic recovery. However, some caution remains due to questions about the level of recovery.

The market is highly likely to follow a stair-step upward path by confirming positive figures in the future. Considering that corporate earnings forecasts remain conservative compared to the rebound in macroeconomic indicators, the possibility of future surprises is also judged to be high. Naturally, stock prices can also be adjusted upward retrospectively. Advanced countries' manufacturing indicators such as the Purchasing Managers' Index (PMI) show record improvements, but domestic corporate earnings lag somewhat. Considering that economic activities have not fully resumed and deferred demand has not been fully resolved, the upside for macroeconomics and earnings is judged to be more open. In addition, the rise centered on producer prices and various shortages of parts and materials create a favorable environment for domestic companies focusing on mid- to long-term exports.

Although foreign investors have sold shares in recent days, the inflow trend is expected to continue as it did in early April. This is because, in addition to exchange rate and interest rate conditions, the high economic sensitivity of the domestic economy will stand out as a differentiating factor. The resumption of short-selling trading scheduled for early May can be an incentive for domestic stock market investment in that it allows foreign investors to diversify their strategies. It is necessary to recall that funds employing two-way strategies, rather than long-only funds that only build buy positions, have recently become mainstream. Therefore, sectors that have seen deep foreign selling amid recent upward earnings revisions should be carefully monitored. These include automobiles, construction, energy, distribution, durable consumer goods, securities, and hardware.

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