[Good Morning Stock Market] Weak US Economic Indicators... KOSPI Expected to Start Lower

by Jang Hyowon

Published 17 Apr.2023 08:32(KST)

On the 17th, the KOSPI is expected to start lower. It is forecasted that a sharp rise in expected inflation and weak U.S. real economy indicators will weigh on the market.

On the 14th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,886.47, down 143.22 points (0.42%) from the previous session. The Standard & Poor's (S&P) 500 index fell 8.58 points (0.21%) to 4,137.64, and the Nasdaq index dropped 42.81 points (0.35%) to 12,123.47.

[Image source=Yonhap News]

That day, the New York stock market started higher supported by solid corporate earnings despite weak economic data. However, hawkish remarks from Federal Reserve (Fed) Governor Christopher Waller and a significant upward revision of the University of Michigan's 1-year expected inflation from 3.6% to 4.6% during the session caused the market to turn lower.

Following this news, the dollar strengthened and government bond yields surged, leading to heavy selling pressure across most sectors except banking stocks. Nevertheless, expectations for the earnings season helped limit the decline. By sector, large banks such as JP Morgan and Citigroup showed strength, while Morgan Stanley fell amid concerns over increased costs due to the use of Nvidia chips.

The Morgan Stanley Capital International (MSCI) Korea Index Exchange-Traded Fund (ETF) fell 1.03%, and the MSCI Emerging Markets Index ETF dropped 0.53%. Considering this, the KOSPI is expected to start the day down around 0.5%.

Seosangyoung, a researcher at Mirae Asset Securities, analyzed, "The decline in the U.S. stock market due to the sharp rise in expected inflation and hawkish Fed officials' remarks will burden the domestic stock market. Additionally, retail sales shrinking by 1.0% month-on-month for two consecutive months also weighs on the domestic market." He added, "The U.S. earnings season started well, and the possibility of corporate profits turning positive year-on-year in the second half of this year is a factor improving investor sentiment. However, the sharp rise in expected inflation and weak real economy indicators are burdensome factors for the export-dependent domestic stock market sentiment."

Han Jiyoung, a researcher at Kiwoom Securities, forecasted, "Since Tesla's Q4 earnings were the catalyst for the turnaround in domestic secondary battery stocks since the end of January, the Q1 earnings results of this company will impact the entire domestic growth stocks, including secondary battery stocks."

In particular, there is analysis that the relative strength of the KOSDAQ compared to the KOSPI continues, raising concerns about overheating. While the KOSPI has risen 15% since the beginning of the year, the KOSDAQ has surged 33%, and the KOSDAQ's credit balance (10.2 trillion won) exceeds that of the KOSPI (9.3 trillion won).

Han said, "This is progressing at a level comparable to the 2015 bio bubble and the 2018 KOSDAQ activation policy, increasing concerns about overheating. However, unlike then, this KOSDAQ strength is largely due to the intensified dominance of secondary batteries. As the overheating of secondary battery stocks eases, overall KOSDAQ price volatility may increase, but unlike in the past, the adjustment pressure on the overall index will be limited."

Meanwhile, the 1-month non-deliverable forward (NDF) won-dollar exchange rate in New York was 1,302.71 won. Reflecting this, the won-dollar exchange rate is expected to start the day up 3 won.