[Good Morning Stock Market] US 'Economic Typhoon' Concerns Resurface... Domestic Stock Market Expected to Weaken

[Image source=Yonhap News]

[Asia Economy Reporter Ji Yeon-jin] During the two trading days when the domestic stock market was closed, the U.S. stock market showed weakness. On the 1st (local time), the U.S. Federal Reserve's economic report (Beige Book) mentioned weak demand, and concerns over rising interest rates due to quantitative tightening, along with JPMorgan CEO Jamie Dimon's remark to "prepare for the hurricane (typhoon) coming to the economy," pulled down stock prices. The Standard & Poor's (S&P) 500 index fell 1.4%, while the Dow Jones and Nasdaq dropped 1.2% and 1.1%, respectively.

◆ Seo Jeong-hoon, Samsung Securities Researcher = Last night, the New York stock market closed lower despite strong economic indicators. The May manufacturing Purchasing Managers' Index (PMI) released by the U.S. Institute for Supply Management rose 0.7 points from the previous month to 56.1, far exceeding the market expectation of 54.5. The U.S. Department of Labor reported that the number of job openings in April was 11.4 million, down 455,000 from the previous month, but still above the market expectation of 11.35 million.

However, investors expect the Fed's aggressive tightening stance to continue, with the benchmark 10-year U.S. Treasury yield rising about 6 basis points to surpass the 2.9% level. The 2-year yield, sensitive to policy rate outlooks, rose 9 basis points to settle in the 2.6% range. The dollar index increased by 0.8%, and WTI crude oil closed up 0.5% at $115.26.

Recently, the domestic stock market has been attempting a gradual rebound with inflows of foreign buying. However, given the ongoing high interest rate environment, it is necessary to carefully verify the valuation factors of stocks while selecting those that have experienced excessive declines.

◆ Han Ji-young, Kiwoom Securities Researcher = On the 31st of last month, the meeting between U.S. President Joe Biden and Federal Reserve Chair Jerome Powell resulted in only a theoretical discussion on inflation response, causing disappointment. It appears that the government and central bank have indirectly acknowledged that there are no other control measures besides demand stimulation. The issue is whether a recession will occur during the process of addressing inflation, and the current market sentiment seems to be reflecting stock prices toward a recession, as warned by JPMorgan's CEO about a "hurricane approaching the economy."

However, it is necessary to note that key data such as the manufacturing PMI and consumer sentiment index are improving, and China is lifting lockdown measures and implementing full-scale stimulus policies. Although market volatility is expected to increase frequently amid recession debates centered on the U.S., there is a lack of evidence of recession in the indicators, and considering the increasing entry merits in valuations, it is judged that conservative risk management such as excessive cash allocation

should be avoided at this point.

The domestic stock market showed strength supported by foreign net buying in the trillion-won range following the MSCI rebalancing in the previous trading day, but today it is expected to face downward pressure due to U.S.-originated burdens that occurred during the market closure period. However, May exports increased by 21.3% year-on-year, exceeding the forecast (19.3%), which is expected to support the intraday bottom of the domestic stock market.

◆ Choi Yoo-jun, Shinhan Financial Investment Researcher = The Korean economy is closely linked with China and tends to be synchronized with the stock market centered on manufacturing. The strengthening of China's 'zero-COVID' policy restricted economic activities, hampering the domestic stock market. China's manufacturing PMI fell below the baseline for three consecutive months but rebounded in May near the baseline due to expectations of easing lockdowns. The Korean won's value reacted sensitively to the yuan's movement after the lockdown. The simultaneous effects of U.S. tightening and concerns over China's economic slowdown pushed the won-dollar exchange rate to a 13-year high. The easing of lockdowns increased downward pressure on the won-dollar exchange rate, creating a favorable environment for foreign demand.

The easing of China's lockdowns led to expectations that trust in the profits of Korean manufacturing companies could be restored, driving the stock market rebound. This rebound emphasizes the possibility of a cyclical recovery in the stock market. First, energy prices remain high, requiring time to confirm the peak of inflation. The specific impact of China's lockdown on domestic companies has not yet been revealed. It is necessary to observe the direction of China's lockdown easing further. Extreme risk aversion sentiment has subsided for now. Ideas should be sought from the combination of China's export recovery and foreign demand.

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