[MarketING] Despite Improvement in US Economic Indicators, Cautious Stance Deepens Ahead of Powell's Remarks

KOSPI Starts Higher Then Turns Lower
Sideways Trend Expected Through Later This Week

The KOSPI initially rose but then turned downward. Ahead of the speech by Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), cautious sentiment deepened, preventing the upward momentum from continuing and causing the index to falter. With the U.S. Personal Consumption Expenditures (PCE) price index, which could influence Fed policy, scheduled for release later in the week, a sense of caution is expected to persist.

KOSPI Turns Downward After Rising Start

As of 10:15 a.m. on the 28th, the KOSPI stood at 2,573.16, down 8.23 points (0.32%) from the previous day. The KOSDAQ rose 1.78 points (0.20%) to 875.92.

[Image source=Yonhap News]

Following the U.S. stock market's rise due to improved economic indicators and a rebound in big tech stocks, the KOSPI started the day higher but failed to overcome the deepening cautious sentiment and turned downward. On the 27th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 0.63%, the S&P 500 increased 1.15%, and the Nasdaq climbed 1.65% compared to the previous day.

Sangyoung Seo, a researcher at Mirae Asset Securities, explained, "The U.S. stock market rose as the economic indicators released that day improved, boosting confidence in the economy. Although profit-taking emerged in sectors that had seen significant gains amid concerns about recent economic slowdown, the solid economic data increased confidence in the economy and led to gains in previously declining stocks such as Tesla and Nvidia."

The U.S. Conference Board Consumer Confidence Index for June recorded 109.7, surpassing last month's 102.5 and the expected 104.0. This is the highest level in 17 months. The current economic conditions index rose from 148.9 to 155.3, and the index for expected economic conditions over the next six months increased from 71.5 to 79.3.

U.S. durable goods orders in May increased by 1.7% compared to the previous month, marking the third consecutive month of growth. This exceeded both the previous month's 1.2% and the forecasted -0.9%. New home sales in May reached 763,000 units, surpassing the previous month's 680,000 and the expected 667,000.

Jiyoung Han, a researcher at Kiwoom Securities, said, "The U.S. Goldilocks scenario (an ideal economic condition that is neither too hot nor too cold), which had entered the market at some point during May and June, has retreated following the June Federal Open Market Committee (FOMC) meeting and the slowdown in manufacturing Purchasing Managers' Index (PMI) in major countries. Now, the focus is shifting toward the possibility of the U.S. economy entering a recession. In this context, the recent series of positive economic indicators is considered a favorable factor for the stock market."

It is expected that sensitivity to economic indicators will continue for some time. One researcher forecasted, "At this point, it is appropriate to accept the base scenario of a 'shallow recession entry + inflation level down,' but considering that the market's outlook on the U.S. economy is still unsettled, stock prices are likely to remain sensitive to economic data for a while."

Cautious Sentiment Expected to Continue Through Late Week

The cautious sentiment that has enveloped the market due to Powell's speech and economic data released later in the week is expected to persist for the time being.

Chairman Powell is scheduled to visit Europe on the 28th and 29th to deliver remarks. On the 28th, he will participate as a policy panelist at the European Central Bank (ECB) forum in Portugal, and on the 29th, he will engage in a dialogue with the Governor of the Bank of Spain at a conference hosted by the Bank of Spain. Given his hawkish (favoring monetary tightening) remarks at the June FOMC and last week's congressional hearing, attention is focused on whether he will maintain this stance at the forum.

On the 30th, the Fed's preferred inflation gauge, the May PCE price index, is scheduled for release, which is expected to sustain cautious sentiment. The May PCE is forecasted to rise by only 0.1% month-over-month, a significant slowdown from April's 0.4%, and the year-over-year change is expected to decline from 4.4% in April to 3.8%. This would mark the first time since June 2021 that the PCE inflation rate enters the 3% range.

Kyungmin Lee, a researcher at Daishin Securities, analyzed, "The issue again lies with the core PCE, which is expected to show the same month-over-month and year-over-year changes as in April, at 0.4% and 4.7%, respectively. Following the Consumer Price Index (CPI), the headline inflation rate in the PCE is sharply slowing due to the impact of oil prices, but core inflation remains stagnant due to high housing and service prices." Lee added, "Since the trigger for last week's increased volatility in global financial markets was Powell's hawkish remarks, the PCE results could stir anxiety about further interest rate hikes."

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