"'Jackson Hole Meeting' Is Not Everything... Focus on US Manufacturing PMI and Personal Consumption Expenditures"

The Surrounding Economic Indicators Determine Stock Market Declines More Than Tapering Itself

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), is seen holding a press conference after the Federal Open Market Committee (FOMC) regular meeting on the 28th of last month (local time), displayed on the trading floor screen of the New York Stock Exchange. [Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] As market attention focuses on the U.S. Federal Reserve's (Fed) tapering (asset purchase reduction), unprecedented interest is being drawn to the 'Jackson Hole Meeting' scheduled for August 26-28 (local time). Amid this, there is an analysis suggesting that more attention should be paid to economic indicators such as the U.S. manufacturing Purchasing Managers' Index (PMI) and personal consumption expenditures. This is based on the judgment that tapering is not the sole cause of the stock market correction.

On the 21st, KB Securities emphasized the need to pay attention not only to the Jackson Hole Meeting but also to the U.S. manufacturing PMI and personal consumption expenditures, which will be announced on the 23rd and 27th, respectively. The Jackson Hole Meeting is an economic policy symposium hosted annually in August by the Federal Reserve Bank of Kansas City.

Hainhwan KB Securities researcher explained, "It is not only the tapering itself but also the surrounding environmental changes related to tapering that are influencing the stock market decline," adding, "The combination of economic slowdown concerns and the Fed's tightening, which has become inevitable, is the cause of the stock market weakness." The KOSPI closed at 3,060.51, down 1.20% from the previous day, marking the lowest point in the past five months. During the session, it even fell below the long-term trend line, the 200-day moving average (3,051.60).

KB Securities judged that the momentum of economic recovery has already weakened, as shown by various indicators. The Economic Sentiment Index (ESI) is a representative example. It turned negative from the end of last month. Researcher Ha said, "If the second half of last year and the first half of this year were accustomed to better-than-expected economic indicators or corporate profits, from the end of last month, it means we need to adapt to economic indicators and corporate profits that are worse than expected," adding, "However, the market has not yet adapted to this change, which is the cause of the correction."

KB Securities analyzed economic indicators related to the ESI by dividing them into employment, inflation, consumption, and production. Comparing consumption and production-related indicators such as the Institute for Supply Management (ISM) Manufacturing Index and retail sales with the ESI, they confirmed a similar directional trend. Researcher Ha explained, "These indicators are not referenced by the Fed in monetary policy, so poor performance in these indicators will not delay the tapering schedule, but since they reflect the weakening momentum of economic recovery, they are indicators that can cause concern in the stock market," emphasizing, "The manufacturing PMI and personal consumption expenditures to be announced next week also fall into this category and are key variables to watch besides the Jackson Hole Meeting."

They also analyzed indicators such as the unemployment rate, non-farm payroll employment, and consumer prices. Despite the ESI declining, if employment and inflation perform better than expected even when consumption and production-related indicators are weak, the combination of 'economic slowdown + Fed tightening'?which KB Securities cites as the cause of stock market weakness?is completed.

Regarding consumer prices, there has already been an inverse correlation with the ESI. Researcher Ha diagnosed, "Even as economic momentum slows, inflation risks remain, which is why the Fed's tightening continues," adding, "Employment indicators, which usually have a positive correlation with the ESI, have recently surged due to the suspension of unemployment benefits."

Therefore, it is emphasized that surrounding indicators, rather than tapering itself, may determine the extent of the stock market decline. Researcher Ha stated, "Whether Fed Chair Jerome Powell mentions tapering at the Jackson Hole Meeting is very important, but tapering is ultimately just a matter of timing and will not change in substance," emphasizing, "Since the stock market decline is likely to be determined by the surrounding environment related to tapering, it is necessary to closely monitor how economic indicators differ from expectations."

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