[Weekly Market Outlook] Market Lowers Expectations for Interest Rate Cuts... Focus on US Debt Ceiling Negotiations

KOSPI Expected to Trade in 2420~2550 Range
Stock Prices to Vary Based on Individual Company Earnings in Q1

[Asia Economy Reporter Minji Lee] This week (May 2nd to 6th), the domestic stock market showed weakness as it absorbed uncertainties surrounding the US debt ceiling negotiations, concerns over banks' financial soundness, and the Federal Open Market Committee (FOMC) results. Next week, the stock market is expected to reflect ongoing concerns about the US debt ceiling while showing differentiated movements depending on individual companies' first-quarter earnings announcements.

[Image source=Yonhap News]

According to the Korea Exchange on the 7th, the KOSPI started the week at 2504.01 and closed at 2500.94, down 0.12%. Early in the week, semiconductor companies' stock prices rose amid expectations of a bottoming out in the semiconductor industry, but market sentiment turned negative as external uncertainties expanded, including difficulties in the US debt ceiling negotiations. Concerns over the bankruptcy of US regional banks and lowered expectations for interest rate cuts within the year following the May FOMC also contributed to pulling the index down.

Regarding the US debt ceiling, the confrontation between the parties is intense. The impact of this issue is expected to continue next week. On the 9th, US President Joe Biden is scheduled to invite leaders of the House and Senate to the White House for a meeting, but it is uncertain whether in-depth discussions on this issue will take place. The debt ceiling issue could cause a significant shock to the global economy, so it requires close attention. Earlier, US Treasury Secretary Janet Yellen warned that if the debt ceiling is not raised, there is a high possibility of default on January 1st next year, and if a default occurs, it would cause an economic disaster.

However, market experts do not expect the global economy to be severely impacted. Younghwan Kim, a researcher at NH Investment & Securities, analyzed, “Before the US government falls into default, it enters a shutdown. The Clinton administration (1995), Obama administration (2013), and Trump administration (2018) all experienced shutdowns, but after the debt ceiling negotiations were resolved, the market fully recovered losses and rose further. Short-term stock price corrections may occur.”

Next week, instability in US regional bank stocks is also expected to continue. US regional bank stocks showed high volatility during the domestic stock market holiday (May 5th). For example, PacWest Bank's stock plunged more than 50% on May 4th (local time) after news of the company's sale following the May FOMC, but surged over 80% the next day, May 5th. This was due to global investment bank JP Morgan Chase's analysis that regional bank stocks were excessively undervalued and that the sharp decline was caused by short selling.

NH Investment & Securities forecasts the KOSPI range for next week to be between 2420 and 2550. Notable upcoming events include China's April export and import data scheduled for the 9th and the US April Consumer Price Index (CPI) scheduled for the 10th. However, even if the CPI growth rate slows, the Federal Reserve's stance on interest rate policy is unlikely to change. On May 5th, US April employment data was released, showing nonfarm payrolls increased by 253,000, exceeding the market expectation of 180,000 compiled by the Wall Street Journal (WSJ). Employment data is one of the key indicators influencing the next month's FOMC. Researcher Younghwan Kim explained, “Next week's stock market will fluctuate within a range depending on news related to US debt ceiling negotiations and banking sector risks.”

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