[Good Morning Market] US Stocks Attracting Rebound Buying, Will KOSPI Attempt to Settle at 2400?

Major 3 US Stock Indexes Rise Simultaneously
Won-Dollar Exchange Rate Expected to Start Lower, Foreign Inflow Anticipated

[Asia Economy Reporter Minji Lee] The US stock market closed higher, buoyed by rebound buying. The Dow Jones Industrial Average rose 2.43%, while the Nasdaq and S&P 500 increased by 3.11% and 2.76%, respectively. Expectations for the resumption of Russian natural gas supplies also grew, easing concerns about a Europe-driven recession. Accordingly, the KOSPI is expected to show an upward trend on the 20th, with the semiconductor sector, which had experienced significant declines, likely to attract attention given the strong gains in the US market.

Sangyoung Seo, Researcher at Mirae Asset Securities: "An upward trend is expected mainly in large-cap stocks such as semiconductors."

[Image source=Yonhap News]

The US stock market showed gains, escaping the recession impact caused by Apple's tight management. As rebound buying flowed in and investor sentiment expanded, news emerged that Russia would resume natural gas transportation after maintenance of the Nord Stream 1 pipeline is completed on the 21st, alleviating recession concerns.

It was also positive that major financial firms mentioned that household finances remain robust despite high inflation. Financial firms supported the retail sales data released last week, which confirmed strong consumption. This can be interpreted as the recession issue having been excessively entrenched.

Looking at sector trends, semiconductor-related stocks showed significant gains as recession concerns weakened. The Philadelphia Semiconductor Index rose 4.61%, with Nvidia (5.5%), AMD (5.4%), and Intel (3.9%) also surging.

The domestic stock market is expected to attempt to stabilize above the 2400 level, focusing on the strong performance of the US market. With the euro strengthening and the dollar weakening, the won-dollar exchange rate is predicted to start lower. This is expected to lead to improved foreign demand and an upward trend centered on large-cap stocks such as semiconductors.

Insik Kim, Researcher at IBK Investment & Securities: "The Korea-US interest rate inversion will end faster than in the past."

Ahead of the Federal Reserve's July FOMC, concerns about the interest rate inversion between Korea and the US have heightened. The Fed's tightening pressure continued as inflation peaks were reconfirmed, and at the upcoming July Federal Open Market Committee (FOMC), a rate hike of around 75 basis points or more is expected, making the interest rate inversion a reality.

Historically, the inversion of benchmark interest rates between Korea and the US has occurred three times. Generally, the inversion phenomenon appeared during periods when the Fed sharply raised benchmark rates. Past cases include the first inversion (April 1999 to March 2001), the second inversion (June 2005 to August 2007), and the third inversion (June 2017 to February 2020), each lasting about 2 to 3 years. The inversion was resolved when the Fed eased its tightening stance amid increased economic instability.

However, this time, due to the US short- and long-term interest rate inversion, recession concerns, unusual inflation, and peak-out expectations, the inversion is expected to appear in a more compressed form than before. This is because recession fears are accelerating. Considering this, the Fed's rate hikes are expected to peak in the first quarter of 2023 and face pressure thereafter. Market interest rates tend to recognize this 3 to 6 months earlier and more strongly by about 0.24% to 0.75%.

Investment strategies can be formulated here, as the low price merit of US bonds is expected to increase after the third-quarter rate hikes. Considering the current high volatility in the bond market, accumulating purchases during periods when bond prices fall is also a viable approach. The same applies to domestic bonds, and investors responding with bond ETFs is also positive for improving returns.

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