[Good Morning Stock Market] Hawkish Fed Dampens Investor Sentiment... Semiconductors and Electric Vehicles Show Potential Strength

US Fed Vice Chair's Hawkish Remarks Cause 'Turbulence'... Micron and Others Surge
Domestic Stock Market Faces Investor Sentiment Concerns... Expect Sector-Specific Trading

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Last week, the U.S. stock market, which had been on a recent upward trend, closed mixed. This appears to be due to hawkish remarks, including Federal Reserve (Fed) Vice Chair Richard Clarida mentioning the possibility of accelerating tapering (reduction of asset purchases). The domestic stock market is also expected to open lower amid concerns about Fed policy, followed by a market focusing on certain individual stocks.

On the 18th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 35,870.95, down 60.10 points (0.17%) from the previous day. The S&P 500 index rose 15.87 points (0.34%) to 4,704.54, and the Nasdaq index increased by 72.14 points (0.45%) to 15,993.71.

◆ Sangyoung Seo, Researcher at Mirae Asset Securities = Fed Governor Christopher Waller argued that the Fed should accelerate the pace of tapering. This is based on the judgment that the U.S. economy is solid and rapidly approaching maximum employment. He emphasized that the Federal Open Market Committee (FOMC) in January next year should speed up tapering and complete it by April next year. He also stated that room should be left to raise interest rates in the second quarter of 2022.

Fed Vice Chair Clarida also stated that since very strong economic growth is expected in the fourth quarter, the December FOMC should discuss accelerating the pace of tapering. He also argued that due to upside risks to inflation, he prefers a faster tapering pace. As a result, the U.S. stock market either gave back gains or saw an expanded decline.

By sector, extreme differentiation occurred. Metaverse-related stocks and electric vehicles surged sharply. Semiconductor companies such as Micron Technology and Lam Research also showed strength. Energy sector stocks like ExxonMobil fell due to the sharp drop in international oil prices, and Boeing declined on news of aircraft defects.

Due to these influences, the domestic stock market is also expected to continue a market focused on individual stocks. However, the U.S. stock market’s weakness following Fed Vice Chair Clarida’s hawkish (preference for tightening policy) remarks is a burden on the Korean stock market. In particular, the strengthening of the U.S. dollar and Japanese yen, the sharp drop in international oil prices, and the decline in government bond yields have increased safe-haven demand, which also dampens investor sentiment. Therefore, a lower start is expected, but the fact that Micron Technology surged over 7% as a leading indicator of semiconductor industry weakness and the strength of related stocks due to expectations for the expansion of the electric vehicle and metaverse industries are favorable factors.

◆ Jaeman Lee, Researcher at Hana Financial Investment = The dollar index reached a record high of 95.91 as of the 16th. On the 17th, it surpassed 96 intraday, the highest level since July last year. The increase in the expected number of Fed rate hikes to 2.5 times in 2022 has caused concerns about a faster-than-expected monetary tightening, which is the cause of the dollar’s strength. Despite net foreign buying in the KOSPI over the past two weeks, the record high in the dollar index weakens confidence in the sustainability of foreign net buying.

If the U.S. economic expansion continues as it is, some degree of monetary tightening can be tolerated. However, China’s credit impulse (the share of private sector credit in GDP), which is a leading indicator of the U.S. ISM manufacturing index, has been steadily declining to 23.2% since February. Since China is not supplying liquidity, doubts are increasing about the continuation of global economic expansion and the reversal of corporate profit growth rates. Therefore, liquidity is concentrating on companies with higher potential future profit growth than currently. The scale of investment for future growth, rather than whether corporate profits turn positive, is an important variable determining liquidity concentration.

However, it is also necessary to keep in mind the possibility that the current liquidity concentration phenomenon may ease in the future. First, attention should be paid to the news that Micron Technology, which surged sharply last week, may have passed the bottom and entered a phase of earnings improvement. This is a positive change as it is closely related to the profit flow of domestic semiconductors. The fact that foreign net buying of SK Hynix has continued for six consecutive weeks is a representative sign of easing liquidity bottlenecks.

The growth rate of China’s total social financing in October also turned positive at +14% for the first time in four months. The growth rate of China’s total social financing is highly correlated with the net change rate of the credit impulse. Considering the improvement in China’s total social financing growth rate, it is judged that the extreme liquidity contraction in China is likely coming to an end. Following the Chinese economic work conference in December, the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC) are scheduled for the first quarter of next year, so expectations for policy announcements are expected to rise as the market enters this phase.

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