[Good Morning Market] "Biden's Expression of Confidence is Positive"... Possibility of Cautious Stance Remains Ahead of FOMC

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] Ahead of the Federal Open Market Committee (FOMC) regular meeting and earnings announcements from big tech companies, the U.S. stock market closed mixed. On the 25th (local time), the Dow Jones Industrial Average rose 90.75 points (0.28%) from the previous session to close at 31,990.04, the large-cap focused S&P 500 index increased by 5.21 points (0.13%) to 3,966.84, while the tech-heavy Nasdaq index fell 51.45 points (0.43%) to 11,782.67.

The U.S. stock market was affected by weak economic indicators. Early in the session, the decline widened after Russia’s state-owned gas company Gazprom announced a reduction in natural gas supply. Concerns over the semiconductor industry led to declines in semiconductor stocks, which in turn triggered selling in tech stocks. However, later in the session, the drop narrowed after U.S. President Joe Biden stated that he does not believe the economy will enter a recession and mentioned that he would speak with Chinese President Xi Jinping during the week.

The fact that the U.S. stock market, led by technology stocks, declined with the Philadelphia Semiconductor Index falling 0.61% is expected to weigh on the domestic market on the 26th. However, the possibility of a stronger Korean won could positively influence foreign investor flows. Additionally, President Biden’s mention of talks with President Xi and his confidence in the U.S. economy are favorable for the domestic market. Nonetheless, with major events upcoming, a cautious stance is expected to persist.

◆ Seo Sang-young, Head of Media Content Division, Mirae Asset Securities = The Chicago Federal Reserve Bank’s June National Activity Index (NAI) was -0.19, remaining in negative territory for the second consecutive month. Notably, the three-month average dropped from 0.09 to -0.04, marking the first negative reading since June 2020, suggesting ongoing concerns about the economy.

Furthermore, Gazprom’s report that it would reduce natural gas inflow to Germany via the Nord Stream 1 pipeline from 40% to 20% due to turbine issues led to a narrowing of the euro’s gains and an expansion of index declines.

Given these circumstances and upcoming key events such as the FOMC meeting, market participants appear to have refrained from aggressive moves. Toward the close, the market narrowed losses or turned positive, influenced by President Biden’s confidence in the economy and his mention of talks with President Xi.

The U.S. market’s tech-led decline amid recession concerns ahead of major events poses a burden on the domestic market. Additionally, Barclays and Deutsche Bank’s expressed concerns about the semiconductor industry, including downward revisions of target prices and investment ratings for some stocks, contributed to the Philadelphia Semiconductor Index’s 0.61% drop, which is expected to dampen investor sentiment toward related stocks.

However, the likelihood of a stronger Korean won could be a positive factor for foreign investor demand. President Biden’s remarks about the meeting with President Xi and his confidence in the U.S. economy are also favorable. The domestic market is expected to open with a rise of around 0.3%, with limited fluctuations depending on foreign investor activity in the semiconductor sector.

◆ Han Ji-young, Researcher at Kiwoom Securities = Currently, market participants are adopting a wait-and-see approach ahead of major midweek events, refraining from directional bets.

While the White House officially states that the strong labor market supports the view that the economy will avoid a recession, the market seems to place more weight on the possibility of a technical recession, defined as two consecutive quarters of negative growth. However, considering the significant declines in major markets such as Korea and the U.S. since May, when recession risks began to surface, it is expected that even if a recession is confirmed, the market will treat it as a foregone negative fact.

Following mixed performance in the domestic market the previous day, supported by strength in automobile stocks and improved foreign investor flows, the market is expected to show limited movement influenced by cautious sentiment ahead of major midweek events.

Additionally, Walmart’s significant downward revision of its annual guidance after the U.S. market close is a negative factor. This is expected to constrain improvement in overall investor sentiment, affecting not only domestic retail stocks but the broader market. Walmart’s earnings weakness is linked to changes in consumer spending patterns and demand weakness, which could lead to inventory management issues for certain or key products. However, stocks related to electrical equipment, automobiles, and groceries, which are relatively free from inventory issues, are expected to show favorable price movements today.

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