[Good Morning Stock Market] Taking a Breather Ahead of FOMC... Focus on Weakening Dollar

Nasdaq Surpasses 10,000 During Session but Gains Narrow
Dollar Weakness Likely to Deepen if Additional Stimulus Announced at FOMC

[Asia Economy Reporter Minji Lee] Major indices on the US New York Stock Exchange showed a pause ahead of the Federal Open Market Committee (FOMC) meeting. The Nasdaq briefly surpassed the 10,000 mark intraday for the first time in history but soon reduced its gains. In the foreign exchange market the previous day, the won-dollar exchange rate fell below 1,200 won for the first time in three months, reflecting market expectations for economic recovery, but the dollar's weakness was limited as the New York stock market showed mixed results.

[Image source=Reuters Yonhap News]

◆ Sangyoung Seo, Kiwoom Securities Researcher = The US stock market saw a large volume of profit-taking sales as concerns grew over indiscriminate rises in indices the previous day. Some retail and energy stocks that had either gone bankrupt or were at high risk of bankruptcy had surged regardless of their fundamental conditions, but as market concerns led to selling pressure, the Russell 2000 index, which tracks small and mid-cap stocks with higher risk, fell about 2% that day.

The market also showed concentration in specific stocks. While concerns over economic improvement increased, the Dow and S&P 500 declined, but the Nasdaq attracted inflows mainly into large tech stocks such as Amazon (3%), Apple (3%), and Facebook (3%). Ahead of the FOMC, market participants appeared to adopt a defensive stance, shifting from small-cap to large-cap stocks.

◆ Jinwook Heo, Samsung Securities Researcher = The won-dollar exchange rate fell below the 1,200 won level intraday for the first time since March 11. After rising to 1,244 won last month, the won appreciated about 4% against the dollar in 15 days.

The dollar's weakness reflects expectations of economic recovery following surprising economic indicators from major countries. The manufacturing and services PMIs for May in major countries such as Europe, China, and the US all showed improvements exceeding expectations. This indicates a V-shaped recovery in the US labor market and that the worst phase in April has already passed.

The euro's strength was also influenced by strengthened policy momentum in the Eurozone. Following the European Recovery Fund agreement between Germany and France on May 19, which involved joint debt issuance, last week's ECB monetary easing policy that exceeded market expectations and Germany's announcement of additional expanded fiscal measures greatly boosted expectations for European economic recovery.

Additionally, a month after economic activities resumed, the absence of signs of COVID-19 resurgence in major countries also contributed to the dollar's weakness. In financial markets, preference for risk assets has already strengthened.