[Good Morning Stock Market] Rising Recession Risks Due to Weak US Consumer Data... Beware of Increased Volatility

On the 12th (Eastern Time, US), the US stock market started higher with a strong trend and a rally in technology stocks, but turned lower as the US Consumer Sentiment Index fell to a six-month low, raising concerns about a recession and triggering selling pressure. Additionally, the 5-year expected inflation rate reached its highest level since 2011, adding to the inflation burden and driving the index down. However, before the close, a rebound buying centered on large-cap stocks helped reduce losses. As a result, the Dow Jones Industrial Average closed at 33,300.62, down 0.03% (8.89 points) from the previous session. The Standard & Poor's (S&P) 500 index fell 0.16% (6.54 points) to 4,124.08, and the Nasdaq index ended the day down 0.36% (43.76 points) at 12,284.74.

The decline in the US stock market due to the weak US consumer sentiment indicator and the increased possibility of a recession is expected to weigh on the Korean stock market as well. Furthermore, the strong inflation burden, with the 5-year expected inflation rate reaching its highest level since 2011, along with the strengthening of the dollar and the sharp rise in Treasury yields, are also negative factors for the Korean market. Amid this, uncertainty surrounding the US debt ceiling negotiations is expected to limit active responses from major market participants, likely prolonging the sluggish trend.

Seosangyoung, Head of Media Content Division at Mirae Asset Securities: “KOSPI to start down around 0.5%”

[Image source=Reuters Yonhap News]

Today, the KOSPI is expected to start down around 0.5%. Volatility is likely to increase as the market awaits US retail sales and debt ceiling negotiations scheduled for this week.

Last Friday, the Korean stock market declined amid heightened concerns over the US debt ceiling negotiations and recession risks. Additionally, the won-dollar exchange rate rose by 8.20 won to 1,334.50, expanding the won's weakness, which led to foreign selling pressure and added supply-demand burdens. Furthermore, the Chinese stock market saw increased foreign selling in the afternoon, widening the decline and adding to the challenging market environment. As a result, the KOSPI fell 0.63% and the KOSDAQ dropped 0.26% on Friday.

Among these factors, the US stock market's decline due to the weak US consumer sentiment indicator and the increased possibility of a recession is expected to weigh on the Korean market. Moreover, the strong inflation burden, with the 5-year expected inflation rate reaching its highest level since 2011, along with the strengthening of the US dollar and the sharp rise in Treasury yields, are also expected to have a negative impact.

Although the US stock market narrowed losses before the close, this was due to supply-demand factors rather than any specific catalyst, so the overall impact is expected to be limited. Meanwhile, uncertainty surrounding the US debt ceiling negotiations is expected to restrict active responses from major market participants.

Particular attention should be paid to increased volatility stemming from individual sector and stock issues, such as the sharp rise in iron ore prices, differentiation in the solar power sector, declines in electric vehicle and secondary battery-related stocks, and drops in Chinese companies. This is because similar changes are expected in related stocks within the Korean market.

Han Ji-young, Researcher at Kiwoom Securities: "This Week’s Focus on US and China Economic Indicators"

[Image source=EPA Yonhap News]

The Korean stock market is expected to show a neutral level of price movement influenced by the US debt ceiling negotiations, real economic indicators such as retail sales and industrial production in the US and China, remarks from key Federal Reserve officials, and changes in estimates following the end of the first-quarter earnings season. The expected KOSPI range for this week is 2,440 to 2,540 points.

On the 12th, the US stock market closed lower amid ongoing uncertainty over the debt ceiling negotiations, rising expected inflation in May, weakening consumer sentiment indicators, and hawkish remarks from Federal Reserve officials. The preliminary University of Michigan Consumer Sentiment Index for May was 57.7, significantly below the previous month’s 63.5 and the forecasted 63.0, indicating potential upward pressure on inflation.

While recession fears have increased, the simultaneous rise in expected inflation is a concern for the market; however, the market’s downside rigidity appears to remain intact.

Key events to watch during the week include US real economic indicators such as April retail sales and industrial production, as well as Walmart’s earnings, which serve as a gauge of the economy. The market is currently highly sensitive not only to whether the Federal Reserve ends its tightening but also to the side effects following the tightening. If these indicators come in weak, negative stock price reactions should be anticipated.

China’s real economic indicators, including retail sales and industrial production, are also expected to impact the domestic market. Amid escalating US-China tensions, there is an opinion that domestic sectors highly dependent on China, such as semiconductors, automobiles, and cosmetics, may not benefit significantly even if the Chinese economy improves.

However, the reopening-driven recovery in the Chinese economy is creating positive flows of foreign investment into emerging markets, including Korea, due to expectations of demand recovery across emerging economies.

In this context, the upcoming Chinese real economic indicator results scheduled for this week could cause meaningful changes in foreign investor flows in Korea, making market attention to these indicators likely to increase.

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