[Good Morning Stock Market] Risk Aversion Strengthens Amid Tightening and Recession Concerns

Dow and Nasdaq Indexes Fall About 1%
Focus on Next Week's Q4 Economic Growth Rate Announcement

[Asia Economy Reporter Minji Lee] Last night, the U.S. stock market declined due to concerns over tightening and fears of an economic recession. Although the domestic stock market has recently shown signs of being free from the influence of the U.S. Federal Reserve's (Fed) policies, the approaching Lunar New Year holiday closure has strengthened the sentiment to avoid uncertainty, limiting the potential for index gains.

Sangyoung Seo, Researcher at Mirae Asset Securities: “Focus on easing U.S.-China tensions amid U.S. stock market decline”

The U.S. stock market fell due to concerns that tightening may continue, based on Fed officials' remarks that inflation remains at a high level and employment data, which burdens the domestic stock market. The Dow Jones Industrial Average dropped 0.96%, while the S&P 500 (-0.76%) and Nasdaq Composite (-0.96%) also declined.

Political uncertainty surrounding the U.S. debt ceiling is also negatively affecting investor sentiment. Since the Republicans took control of the House of Representatives in the recent midterm elections, the first confrontation between the House and the White House could intensify power struggles. Treasury Secretary Yellen has requested cooperation from Congress, but the Republicans continue to demand preemptive government spending cuts, prolonging the conflict.

However, expectations for easing U.S.-China tensions are likely to continue. Meetings between U.S. Treasury Secretary Yellen and Chinese Vice Premier Liu He, as well as Yellen’s additional visits to China, are seen as positive for investor sentiment as they could help ease U.S.-China conflicts. The rise of Chinese companies in the U.S. stock market and the anticipated stability of the Chinese stock market are also positive factors.

Yumi Kim, Researcher at Kiwoom Securities: “Focus on next week’s economic indicator releases”

Next week, attention should be paid to major economic indicator releases. Preliminary figures for South Korea’s Q4 economic growth rate will be announced. Market expectations are for a -0.3% quarter-on-quarter decline and a 1.4-1.5% slowdown year-on-year. Due to generally weak domestic and external demand, a quarter-on-quarter contraction is inevitable. Although there are hopes for improved export demand to China following China’s reopening, demand recovery in other regions remains limited, so the positive impact is expected to be smaller than anticipated. While China still accounts for a large share of exports by region, the share of exports to the U.S. is increasing, making recovery in demand from advanced countries other than China necessary.

The domestic consumption situation is also unfavorable. Corporate demand improvement has been limited due to deleveraging caused by high interest rates. There is a high possibility that demand will contract further during the debt adjustment process.

Attention should also be paid to U.S. economic indicator releases. The estimated Q4 economic growth rate is projected at 2.6% annualized quarter-on-quarter. Considering that the Atlanta Federal Reserve estimates Q4 growth at 3.5%, the market estimate could be slightly exceeded.

Housing starts and building permits continue to decline month-on-month, and the Philadelphia manufacturing index remains below the baseline, raising concerns about the economic direction. Additionally, considering that initial jobless claims released this week remain low, indicating a still-robust labor market, if Q4 economic growth turns out favorable, it could provide the Fed with justification for tightening.

Eurozone S&P manufacturing and services PMI indices are also scheduled for release. Both the S&P manufacturing and services PMI indices are expected to improve, with the services PMI projected to exceed the baseline. Last year, the energy crisis increased the likelihood of a recession, but with the easing of related concerns such as falling natural gas prices, a more positive outlook on the economy has formed. Expectations for improved Eurozone exports to China following China’s reopening also support this positive shift in sentiment.

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