[Good Morning Stock Market] "Impact of US Treasury Yield Rise... Domestic Market Expected to Start Lower"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] The U.S. stock market closed lower as Treasury yields rose despite corporate earnings announcements. On the 19th (local time), the Dow Jones Industrial Average fell 99.99 points (0.33%) to 30,423.81, the large-cap S&P 500 index closed at 3,695.16, down 24.82 points (0.67%). The tech-heavy Nasdaq index ended the session at 10,680.51, down 91.89 points (0.85%).

Despite recession concerns, major companies reported earnings that exceeded expectations. According to Refinitiv, among 45 companies listed on the S&P 500 that have reported earnings, 69% posted results above estimates.

However, the impact of earnings announcements was overshadowed by rising Treasury yields. The U.S. 10-year Treasury yield surpassed 4%, reaching 4.13%, reflecting concerns that high inflation may persist. The 2-year Treasury yield exceeded 4.5%.

Additionally, the Federal Reserve's Beige Book, a report assessing economic conditions, indicated that economic activity expanded modestly. While inflation remains elevated, some areas showed signs of easing. However, signs of labor market cooling in certain regions raised concerns about a recession caused by aggressive tightening.

The U.S. housing market is also struggling due to rising interest rates. According to the U.S. Department of Commerce, housing starts in September fell 8.1% from the previous month to 1.44 million units, below the market forecast of 1.46 million. Single-family housing starts dropped to 892,000 units, the lowest since May 2020. Mortgage rates recently surpassed 7%.

The decline in the U.S. stock market is expected to weigh on the domestic market on the 20th, leading to a lower start. However, the Fed's Beige Book noting easing in employment and inflation in some regions, along with a 0.7% rise in the Philadelphia Semiconductor Index, are positive factors.

◆ Seo Sang-young, Head of Media Content at Mirae Asset Securities = Political uncertainty from the UK intensified, causing the pound to weaken by over 1% against the dollar, which strengthened the dollar. Additionally, high inflation persisted with UK and Eurozone consumer price indices (CPI) around 10%, highlighting recession concerns, which contributed to the dollar's strength against the euro and pound.

With housing indicators slowing and recession concerns rising, the dollar's strength and rising Treasury yields led to a decline in the U.S. stock market, which burdens the domestic market. Furthermore, companies reporting weak earnings have spread negative investor sentiment across sectors, increasing selling pressure.

However, the Fed's Beige Book announcement that employment and inflation, which had been factors in rate hikes, dollar strength, and index declines, are beginning to ease in some regions is positive. Although still high, the mention of easing trends is encouraging.

Moreover, the rise in the Philadelphia Semiconductor Index is also positive. Although Tesla, which reported earnings after the U.S. market close, is declining, IBM and Lam Research are rising in after-hours trading, which is also favorable. Considering this, the domestic market is expected to start down about 0.3% but show resilience.

◆ Han Ji-young, Researcher at Kiwoom Securities = It is important to note that the Fed's October Beige Book mentioned recession 13 times. This suggests that concerns about damage to the U.S. economy from high inflation and tightening are forming even within the Fed.

While it is true that global inflation concerns in the U.S., Eurozone, and UK are unlikely to disappear soon, considering that global supply chain issues have eased to levels seen at the end of 2020, it is appropriate for the market to remain open to changes in central bank policy paths, such as the intensity and timing of tightening.

Today, the domestic market is expected to show limited price movement due to weakness in the U.S. market and a rising won-dollar exchange rate, resulting in differentiated sector performance. After the market close, Tesla showed a 3% decline in after-hours trading due to weaker-than-expected vehicle deliveries despite solid net income, which may trigger profit-taking in domestic electric vehicle value chain stocks, such as secondary battery shares that surged the previous day. On the other hand, the rise in the Philadelphia Semiconductor Index due to strong performance by ASML is expected to have a positive impact.

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