[MarketING] Tightening Caution Stimulated by Strong Economic Indicators

KOSPI Declines for Fourth Day... Falls Below 2540 Early Session
KOSDAQ Drops for Second Consecutive Day, Falls Below 870

The KOSPI continued its decline for the fourth consecutive day, slipping to the 2530 level in early trading. The KOSDAQ also showed weakness for the second day in a row, falling below the 870 level. Strong U.S. economic indicators appear to be fueling concerns about tightening, impacting the market. With inflation data scheduled for release next week, heightened caution is expected to persist.

KOSPI Weakens for Fourth Day... Retreats to 2530 Level in Early Trading

As of 10:15 a.m. on the 7th, the KOSPI stood at 2,534.84, down 21.45 points (0.84%) from the previous day. The KOSDAQ fell 1.87 points (0.21%) to 868.66.

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Following strong U.S. economic data released the previous day, expectations for further interest rate hikes by the U.S. Federal Reserve (Fed) have strengthened, negatively affecting the market. This influence also led to a weak close in the U.S. stock market the day before. On the 6th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 1.07%, the S&P 500 dropped 0.79%, and the Nasdaq declined 0.82% compared to the previous day.

According to private employment data provider Automatic Data Processing (ADP), U.S. private employment in June increased by 497,000 compared to the previous month. This figure more than doubled the expert forecast of 220,000 and significantly exceeded the previous month's 267,000.

The weekly initial jobless claims released on the same day exceeded market expectations but remained at a low level, indicating a robust employment market. According to the U.S. Department of Labor, initial jobless claims for the week of June 25 to July 1 rose by 12,000 to 248,000 compared to the previous week. Continuing claims decreased by 13,000 to 1.72 million, marking the lowest level since February.

The June Institute for Supply Management (ISM) Services Index, also released that day, surprised positively. The June ISM Services Index stood at 53.9, surpassing both the previous month's 50.3 and the forecasted 51.0.

Sangyoung Seo, a researcher at Mirae Asset Securities, explained, "Although there is still a possibility of employment slowdown, the labor market remains strong with significant job growth centered in the service sector, and the services index has greatly improved, causing the stock market to contract. This is presumed to be due to the sharp rise in Treasury yields following the Fed's mention of two additional rate hikes at the June Federal Open Market Committee (FOMC) meeting." After the data release, the 10-year U.S. Treasury yield surpassed 4% for the first time since early March, and the 2-year yield exceeded 5%, reaching a 16-year high.

Following the private employment data, the U.S. Department of Labor's June nonfarm payroll report is scheduled for release, likely sustaining heightened caution. Additionally, next week will see the release of the U.S. June Consumer Price Index (CPI) and Producer Price Index (PPI). The market currently estimates that June nonfarm employment increased by 240,000 compared to the previous month, down from May's 339,000. The unemployment rate is expected to decrease from 3.7% to 3.6%.

Market on Alert for Economic Data Until July FOMC

Until the July FOMC, the market is expected to enter a phase of heightened caution, reacting sensitively to economic data.

Jihyun Kim, a researcher at Kiwoom Securities, said, "While a rate hike at the July FOMC is already factored in, confirmation of additional hikes and the direction of growth stocks will require a comprehensive review of the June nonfarm payrolls, unemployment rate, and wage growth data to be released tonight."

Regarding inflation, the hourly average wage growth rate, which is being closely watched, is expected to maintain a similar trend to May, with a 0.3% increase month-over-month and 4.2% year-over-year. Hyunki Chae, a researcher at Heungkuk Securities, explained, "This June employment report will be interpreted as solid evidence for a 25 basis point (1bp=0.01 percentage point) rate hike at the July FOMC. Despite the high-intensity tightening so far, economic activities such as employment have been strong, and there are almost no clear signs that inflation will stabilize at the 2% target, which remains a challenge for the Fed's monetary policy." He added, "Considering that Fed officials agreed to decide on future rate hikes at each meeting based on data reflecting inflation and economic trends, the financial market is likely to respond more sensitively to employment and inflation-related indicators."

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