[Good Morning Market] November FOMC Watch... "Limited Movement in Domestic Stock Market"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] Ahead of the November Federal Reserve (Fed) Federal Open Market Committee (FOMC) meeting, the U.S. stock market closed lower. On the 1st (local time), the S&P 500 index, centered on large-cap stocks, closed at 3,856.10, down 15.88 points (0.41%), while the tech-heavy Nasdaq index fell 97.30 points (0.89%) to 10,890.85. The Dow Jones Industrial Average dropped 79.75 points (0.24%) to 32,653.20 compared to the previous session.

The market initially rose about 1% on expectations of a slowdown in the Fed's rate hike pace, but concerns over economic slowdown and an increase in U.S. job openings in September led to a stronger dollar and a reversal to a decline in the U.S. stock market. According to the September Job Openings and Labor Turnover Survey (JOLTS), U.S. companies posted 10.7 million job openings, up from 10.3 million the previous month, exceeding experts' forecast of 9.8 million.

The decline in the U.S. stock market is expected to affect the domestic market on the 2nd. In particular, the dollar's strength following the employment data could weigh on foreign investor demand. However, the Philadelphia Semiconductor Index, which significantly influences the domestic market, fell only 0.77%, which is a positive sign. Considering these factors, the domestic market is expected to start flat and show limited fluctuations on the day.

◆ Seo Sang-young, Head of Media Content at Mirae Asset Securities = The dollar, which had been weak, turned strong after the early release of employment data, and U.S. Treasury yields also rose. Strong corporate hiring intentions could lead to further wage increases and increase the possibility of prolonged inflation, weakening expectations for a shift in the Fed's monetary policy.

However, the number of hires decreased from 6.334 million to 6.082 million, indicating a slowdown in the employment rate. Ultimately, while companies have strong hiring intentions, active recruitment is limited due to high wages and other factors. Additionally, the increase in job postings is attributed to a surge in face-to-face service sectors ahead of the year-end, which also saw a decline in employment rate, limiting the possibility of a larger-than-expected wage increase.

Furthermore, the U.S. Institute for Supply Management (ISM) Manufacturing Purchasing Managers' Index (PMI) for October stood at 50.2, surpassing the market expectation of 50.0. Although new orders and employment indices improved, the price index slowed, indicating the U.S. economy's resilience while reflecting supply chain concerns and a trend of easing inflation.

The U.S. stock market's decline ahead of the FOMC poses a burden on the domestic market. The stronger dollar and rising bond yields weigh on foreign demand, and increased volatility in large tech stocks may limit active market responses.

However, the U.S. market's weakness was mainly due to profit-taking after recent gains and was limited to large tech stocks. The rise in the small- and mid-cap Russell 2000 index and the Philadelphia Semiconductor Index is positive. Also, the increase in new orders in the ISM manufacturing index, which is closely linked to exports, is a factor improving investor sentiment.

Despite the U.S. market's weakness, more stocks rose than fell, indicating positive investor sentiment. Expectations for the FOMC remain, and the domestic market is expected to start flat and show limited fluctuations as it digests recent gains.

◆ Han Ji-young, Researcher at Kiwoom Securities = The higher-than-expected job postings by U.S. companies in September demonstrate the robustness of the employment market. However, the significant slowdown in inflation-related items such as the price index and delivery index in the ISM manufacturing PMI is notable. This suggests that inflationary pressures from the producer side are easing, which could impact consumer prices. Considering the lag effect of aggressive rate hikes on the real economy, it is important to note that the U.S. may also be entering a vulnerable growth path.

Key points to watch at the FOMC will be whether expectations for a 0.75% rate hike are blocked, changes in judgments regarding inflation and the real economy's expected path, and whether the Fed is considering the series of financial market instabilities it has influenced in its policy decisions.

The domestic market is expected to face downward pressure due to some profit-taking following the recent short-term rally past the 2,300 level and caution ahead of the November FOMC.

Meanwhile, despite the unstable market environment, foreign investors have continued net buying recently. Some opinions suggest that concerns over the upcoming Chinese leadership transition are causing foreigners to reduce their exposure to China and increase their holdings in other emerging markets. It is necessary to pay attention to changes in foreign demand from a mid- to long-term perspective.

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