[Good Morning Stock Market] Rising Expectations for Economic Recovery... Focus on Energy and Semiconductor Sectors

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] On the 5th (local time), the U.S. stock market showed an upward trend as employment indicators improved following COVID-19 vaccinations and trade disputes with the EU eased. Although electric vehicle manufacturers, including Tesla, which are categorized as growth stocks, declined, companies related to economic recovery continued to rise. With Saudi Arabia's decision to continue production cuts causing international oil prices to rise day by day, it is expected that investor sentiment will focus on the energy sector and semiconductor sectors with solid demand in the domestic stock market on this day.

◆ Sangyoung Seo, Kiwoom Securities Researcher = Despite the 10-year U.S. Treasury yield hitting its highest level this year during the session, the decline narrowed as news of eased trade disputes with the EU was reported. As employment indicators showed improvement, sectors related to economic normalization expanded their gains.

When the 10-year U.S. Treasury yield reached 1.62% during the session, Tesla plunged more than 13%, and Chinese electric vehicle maker Nio also showed a downward trend. Tesla has been continuously declining since last month due to reduced carbon credit revenue and issues related to Bitcoin investments, as other automakers actively enter the electric vehicle industry.

The sharp rise in Treasury yields was influenced by a solid employment report. Additionally, when James Bullard, President of the St. Louis Federal Reserve, stated that "rising commodity prices are not the same as persistent inflation, and there is no need for new policies such as Operation Twist at this time," the rise in yields was curtailed. As the 10-year U.S. Treasury yield stabilized, major tech stocks like Apple (1.07%) and Amazon (0.77%), which had shown declines earlier in the session, showed gains.

On this day, stocks related to the strong international oil prices and semiconductor sector are expected to rise in the domestic stock market. This is because the rise in international oil prices is increasing the gains of energy sectors. Also, as semiconductor demand remains solid and the target price for Micron increased, the Philadelphia Semiconductor Index rose about 3.15%.

◆ Junghyuk Na, Hana Financial Investment Researcher = Last month's U.S. employment data showed a major surprise, raising expectations for growth recovery. In March, U.S. nonfarm payrolls increased by 379,000, and the unemployment rate dropped to 6.2% from 6.3% the previous month. Particularly, the broad service sector (513,000) showed strong performance, indicating that the U.S. economy is recovering quickly from the second COVID-19 pandemic wave. Accordingly, the reliability of some key sentiment and leading indicators is expected to increase.

With this employment improvement, it is expected that at the Federal Open Market Committee (FOMC) regular meeting scheduled for the 18th, there is a higher likelihood of maintaining current policies rather than introducing Operation Twist or additional quantitative easing measures.

◆ Sohyun Kim, Daishin Securities Researcher = This year, the international oil price range is revised upward from the previous $53?68 to $58?73. This is because the extension of production cuts by OPEC+ has raised the downside support level for oil prices.

Just one day after the OPEC+ meeting, oil prices surged to the $66 range. This was because, at the March ministerial meeting, it was announced that the production cut targets for April would maintain the levels of February and March. Saudi Arabia also mentioned it would continue voluntary production cuts of 1 million barrels. Russia and Kazakhstan will increase production by 130,000 barrels and 20,000 barrels per day, respectively, reducing the total April production cut target from 8.05 million barrels this month to 7.9 million barrels.

Saudi Arabia's continuation of voluntary production cuts can be linked to its desire to increase fiscal revenue. Saudi Arabia's fiscal deficit this year is expected to be 909.1 billion riyals, about 3.6% of GDP. In January, it issued $5 billion in dollar-denominated bonds, and last month, it issued €15 billion in euro-denominated Eurobonds.

It is also analyzed that supply risks related to the Iran nuclear deal settlement are being considered. Iran's spare production capacity is the second highest within OPEC after Saudi Arabia, and if permitted to export crude oil, it can produce 1.72 million barrels per day in a short period.

However, despite Saudi Arabia's willingness to support oil prices, it is believed that high oil prices will not last long. This is because rising oil prices increase the burden on major oil-importing countries such as China and India, and non-OPEC oil supply from countries like the U.S. can increase in the short term.