[Good Morning Stock Market] Tech Stocks Rebound in US Market... Positive Outlook for Korean Market as Well

Despite Cryptocurrency Plunge, Risk Asset Preference Remains Strong
Semiconductor Index Rally Expected to Boost Korean Stock Market Start
Limited Gains Expected... Attention Needed on Asian Regional Market Changes

[Image source=AP Yonhap News]

[Asia Economy Reporter Minwoo Lee] The U.S. stock market rebounded with strength centered on technology stocks. This appears to be influenced favorably by expectations of economic normalization. The combination of a weaker dollar and rising international oil prices is also expected to have a positive impact on the domestic stock market. However, rather than an expansion in gains, the market is expected to be influenced by movements in surrounding Asian markets.

On the 24th (local time) at the New York Stock Exchange, the Dow Jones Industrial Average closed at 34,393.78, up 0.54% from the previous trading day. The S&P 500 and the tech-heavy Nasdaq indices closed at 4,197.16 and 13,661.17, rising 0.99% and 1.41%, respectively.

◆ Sangyoung Seo, Researcher at Mirae Asset Securities = The U.S. stock market was led by gains in technology stocks. This is presumed to be due to a decline in economic indicators, controversies over Iran nuclear negotiations, and a drop in Treasury yields based on the Federal Reserve's (Fed) moderate monetary policy. The cryptocurrency market's sharp rise despite regulatory concerns is also one of the factors behind the strength in tech stocks. Additionally, expectations for economic normalization continue, with travel and leisure sectors showing strength, highlighting a preference for risk assets.

The tech-driven strength in the U.S. stock market and the 2.32% rise in the Philadelphia Semiconductor Index are expected to have a favorable impact on the domestic stock market. The expectation that economic normalization is progressing rapidly, such as New York City's announcement of 100% in-person classes in the fall, is also expected to positively influence investor sentiment. Of course, the U.S. State Department's travel ban recommendation to Japan due to COVID-19 is somewhat burdensome.

Considering this, the domestic stock market is expected to start higher based on a weaker dollar and rising international oil prices. However, rather than expanding gains, changes are expected depending on movements in surrounding Asian markets.

◆ Sanghyun Park, Researcher at Hi Investment & Securities = Despite increasing uncertainties such as early tapering (reduction in asset purchases) risks in the financial market, the dollar is showing a clear weakening trend, returning to levels seen at the beginning of the year. As of the closing price on the 24th, the dollar index stood at 89.9, approaching the year's low (89.44) just before the Georgia election that led to the Blue Wave (Democratic Party's simultaneous control of both houses).

The background for the dollar's weakness, despite the relative strength of the U.S. economy and the spread of early tapering debates due to inflation risks, appears to be the policy expectations of the Biden administration, which has entered a lull phase. Following the Blue Wave victory in the Georgia Senate election at the beginning of the year, the strong economic rebound triggered by the Biden administration's aggressive stimulus measures led to a sharp rise in U.S. Treasury yields and a stronger dollar. However, delays in congressional approval of infrastructure investment stimulus measures weakened the Biden administration's policy momentum, causing the upward trend in market interest rates and dollar strength to lose some momentum.

Market caution regarding inflation risks has also had an impact. Although debates over U.S. inflation pressures continue, the financial market is somewhat leaning toward the Fed's view that inflation pressures are temporary, which, along with cautious sentiment in the bond market, is exerting downward pressure on the dollar.

Expectations for a rebound in the UK and Eurozone economies are also influencing the market. The vaccination rate gap between Europe, including Germany, and the U.S. has rapidly narrowed since last month, weakening expectations for a U.S.-only economic boom. In particular, the easing of lockdown measures in major European countries has led to rebounds in the May services Purchasing Managers' Index (PMI) and various consumption-related indicators, strengthening expectations for a Eurozone economic recovery. The simultaneous rise in 10-year government bond yields in major Eurozone countries and the narrowing of the Euro-U.S. Treasury yield spread are leading to 'Euro and Pound strength = Dollar weakness.' Additionally, the currently subdued U.S.-China tensions are also contributing to dollar weakness.

Accordingly, the dollar is expected to maintain its weak trend for the time being. This is due to the Euro's strength from the Eurozone economic rebound and the robust global preference for risk assets. The fragile fundamentals of the dollar are also likely to increase additional downward pressure on the dollar. The May U.S. consumer price index and the June Federal Open Market Committee (FOMC) meeting, both to be announced in June, are short-term variables, but if the May CPI does not significantly exceed market expectations, the dollar's weakening trend could accelerate. Expectations for further dollar weakness are also expected to act as additional momentum for the recent somewhat stalled rise in commodity prices.

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