[Good Morning Stock Market] US Stocks Recover Amid Concerns Over China’s Evergrande Group and Eased FOMC Uncertainty

All Three Major US Indexes Close Up Around 1%
Domestic Market Expected to Stabilize as Uncertainty Eases
Evergrande Announces Interest Payment but Full Resolution Not Achieved
US Debt Ceiling Negotiations Still Face Senate Vote Uncertainty

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] The US stock market closed up over 1% as concerns over the bankruptcy of Chinese real estate developer Evergrande (恒大·Hengda) and the Federal Open Market Committee (FOMC) interest rate hike fears eased. With the volatility that shook global markets subsiding during the Chuseok holiday, domestic stocks are expected to stabilize after a slight decline at the start, with limited downside.

On the 22nd (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,258.32, up 1.0% (338.48 points) from the previous day. The S&P 500 index also rose 0.95% (41.45 points) to 4,395.64, and the Nasdaq index closed at 14,896.85, up 1.02% (150.45 points). The Dow and S&P 500 ended a four-day losing streak and turned positive for the first time in a week.

◆Sangyoung Seo, Researcher at Mirae Asset Securities=During the Chuseok holiday, global markets saw increased volatility due to the spotlight on the bankruptcy issues of China's Hengda Group, which heightened the preference for safe assets. Additionally, uncertainty over the US debt ceiling negotiations and the US Senate hearing on Facebook brought antitrust issues to the forefront, adding to the burden.

Hengda Group announced on the 23rd that it would pay interest on its yuan-denominated bonds maturing in September 2025, traded on the Shenzhen Stock Exchange, on time, which eased market anxiety. Following this news, the Chinese stock market reversed a 1.4% decline from the previous day to close up 0.4%. However, this is only a temporary patch as the extreme bank loan issues remain unresolved. It is important to note that anxiety still persists.

Regarding the US debt ceiling negotiations, the House of Representatives passed a bill to provide temporary funding to the federal government until December 3 and to suspend the debt ceiling until December next year. All Democrats voted in favor, and all Republicans opposed, with a narrow 220 to 211 vote, showing a sharply divided stance. Therefore, it remains uncertain whether the Senate will pass it.

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed) [Image source=Reuters Yonhap News]

The US Federal Reserve (Fed) announced through the FOMC that the tapering (reduction of asset purchases) would begin "soon," which was in line with market expectations. However, it downgraded this year's GDP growth forecast and raised the unemployment rate forecast. Interest rates are expected to remain unchanged this year, with one hike next year. Meanwhile, Fed Chair Jerome Powell stated in a press conference that bond purchases would end by mid-next year, indicating a rapid pace of tapering.

Domestic stocks are expected to show stability as the issues causing various uncertainties have calmed down. However, the Fed's advancement of the interest rate hike timing through the FOMC, unresolved US debt ceiling issues, and lingering concerns over Hengda Group's bankruptcy, along with increased social unrest within China, will act as burdens. In particular, the won's weakness due to the strong dollar is expected to pressure foreign investor flows.

Considering this, after a slight decline at the start, the downward trend is expected to continue depending on foreign investor flows. However, the Philadelphia Semiconductor Index and international oil prices rising over 2% each are positive for investor sentiment. Price fluctuations are expected to be limited.

◆Jiyoung Han, Researcher at Kiwoom Securities=The calming of most market uncertainties during the Chuseok holiday provides relief to domestic market participants preparing for the market opening. However, the overall upward momentum of the stock market is expected to be limited. Although concerns over the debt ceiling negotiations and Hengda Group-related anxieties have eased, it is necessary to consider that other negative factors that emerged early in the week have exerted downward pressure on other markets. While there is some overshooting, the won-dollar exchange rate breaking above 1,180 again offshore could be a short-term burden. Therefore, domestic stocks are expected to experience increased short-term volatility as external events not reflected during the holiday are suddenly incorporated.

◆Junghwan Na, Researcher at Cape Investment & Securities=The possibility of Hengda Group's bankruptcy and the US government debt and budget issues all increase downside volatility in the domestic stock market, but rather than reducing stock exposure, buying at low prices is considered effective. If Hengda's bankruptcy affects the private economy, the Chinese government's intervention is highly likely, given its recent declaration of "common prosperity." Regarding a US government shutdown or default, similar events in the past have caused market volatility but were eventually resolved. Although high volatility is expected in the short term, the market direction will ultimately be determined by economic indicators. Therefore, attention should be paid to COVID-19 spread trends, US consumption data, and the September FOMC results.

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