[MarketING] Stock Market, Testing the Downside Rigidity Zone

KOSPI Rebounds on 5-Day Basis
KOSDAQ Starts Upward, Then Fluctuates Around Steady Range

The KOSPI rebounded after five days. This is interpreted as a result of rebound buying following last week's continued decline. The KOSPI, which had a tough week last week with continuous declines and breaking below the 2530 level, is expected to test downside rigidity while digesting major domestic and international events this week as well.

KOSPI rebounds after five days... recovers 2530 level in early trading

As of 10:15 a.m. on the 10th, the KOSPI was at 2,534.79, up 8.08 points (0.32%) from the previous day. The KOSDAQ fell 0.61 points (0.07%) to 866.66. The KOSPI started higher, then turned lower, but is showing signs of returning to an upward trend. The KOSDAQ started higher, then turned lower, fluctuating around the flat line.

[Image source=Yonhap News]

Although the U.S. stock market closed lower last Friday despite positive employment data, rebound buying appears to have flowed into the KOSPI, pushing it higher. On the 7th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 0.55%, the S&P 500 increased 0.29%, and the Nasdaq rose 0.13% compared to the previous day.

Kim Seok-hwan, a researcher at Mirae Asset Securities, explained, "The U.S. stock market started higher as the June employment report released before the market opened fell short of market expectations, easing concerns about Federal Reserve (Fed) tightening. However, it closed lower due to profit-taking during the session and cautious selling ahead of the Consumer Price Index (CPI) scheduled for release on the 12th."

Nonfarm payrolls in June increased by 209,000, below the market expectation of 240,000. This is the smallest increase since December 2020. On the other hand, the average hourly wage in June rose 0.36% month-on-month to $33.58, exceeding the market expectation of 0.3%. The number of unemployed in June decreased by 140,000 from the previous month, with the unemployment rate at 3.6%.

Han Ji-young, a researcher at Kiwoom Securities, analyzed, "The weaker-than-expected June nonfarm payrolls compared to the previous month (306,000) or estimates could have been a bullish factor for the stock market. However, mixed results from other employment indicators such as the unemployment rate and average hourly wage, which showed stronger-than-expected figures, seem to have led market participants to make conflicting stock bets."

Due to the mixed results of the employment data, market attention is expected to focus on the CPI. The researcher said, "Since the Fed's policy path is data-dependent, the market hoped that the June employment data would reduce the possibility of two additional rate hikes. However, whether this possibility recedes has now been passed on to inflation."

Accordingly, the June CPI results scheduled for release on the 12th are expected to influence the future direction of the stock market and any changes in the additional rate hike path after the July Federal Open Market Committee (FOMC) meeting. Bloomberg's compiled forecast for June CPI is 3.1%, and core CPI is 5.0%. These figures represent a slowdown from last month's 4.0% and 5.3%, respectively. The researcher explained, "However, since this decline in June CPI is already partially priced in by the market, unless the results fall short of expectations, the positive impact is likely to be limited."

KOSPI, having broken the mid-term trendline, tests downside rigidity

Due to last week's decline, the KOSPI technically broke below the 60-day moving average (2,557 points), which is the mid-term trendline. This week, it is expected to test downside rigidity while digesting major domestic and international events such as the U.S. June CPI, Chinese inflation and trade data, U.S. financial sector earnings, and the Bank of Korea's Monetary Policy Committee meeting.

The researcher said, "The break below the 60-day moving average is the first occurrence since May 15. Attention should be paid to whether the KOSPI will reclaim the 60-day moving average during the week or, if it falls further, whether it can receive technical support at the longer-term 120-day moving average (2,494 points)."

Since the overall market conditions have not changed significantly, there is a forecast that stock prices will recover. Kang Dae-seok, a researcher at Yuanta Securities, said, "Last week's domestic market weakness was due to the absence of upward momentum, sluggishness in the Chinese market, concerns about Korea's Saemaeul Geumgo, and resulting investor sentiment contraction, leading to increased institutional net selling. Since the overall market conditions have not changed much yet, stock prices are expected to recover from the correction."

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