[Good Morning Stock Market] Growing Optimism for Economic Recovery, Robust US Stock Market

June US Consumer Confidence Index Exceeds Expectations at 127.3
Tapering Concerns High but... Private Credit Expansion May Accelerate Liquidity Growth

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] As expectations for economic recovery rise, a positive trend has emerged in the U.S. stock market. There are also views that asset purchase tapering will not be a factor causing stock market corrections.

The New York stock market showed an upward trend on the 29th (local time). On this day at the New York Stock Exchange, the Dow Jones Industrial Average closed at 34,292.29, up 0.03% (9.02 points) from the previous trading day. The S&P 500 index rose 0.03% (1.19 points) to 4,221.86, and the tech-heavy Nasdaq closed at 14,528.33, up 0.19% (27.83 points) from the previous day.

◆ Seo Sang-young, Researcher at Mirae Asset Securities = Along with solid economic indicators, expectations for the normalization of the U.S. economy are increasing. The U.S. Consumer Confidence Index for June recorded 127.3, surpassing both last month's announcement (120.0) and the forecast of 119.0. This is positive for investment sentiment as it raises expectations for economic recovery. Specifically, the current situation index was revised upward from 148.7 to 157.7, and the expectations index from 100.9 to 107.0.

The abundant job sector improved from 48.5% last month to 54.4%, and difficulty in job seeking decreased from 11.6% to 10.9%. The job gap, which is the difference between these two figures, increased from 36.9 percentage points last month to 43.5 percentage points. Given that this has shown a 76% correlation with the unemployment rate over the past 10 years, it suggests a favorable employment report to be released on July 2.

Despite profit-taking sales, the U.S. stock market showed resilience. Treasury yields rose, and the dollar strengthened due to confidence in the U.S. economy.

(Provided by Meritz Securities)

◆ Hwang Soo-wook, Researcher at Meritz Securities = It seems that concerns about tapering have intensified around this month's Federal Open Market Committee (FOMC) meeting. The U.S. Federal Reserve (Fed) showed its intention to normalize monetary policy by advancing the timing of the first rate hike. The market expects tapering to begin in the first quarter of next year, and there are concerns that if the pace of liquidity growth, which has supported the stock market, slows from next year, it could negatively affect stock prices.

However, fundamentally, tapering is not considered a cause of stock market corrections. Even if tapering is implemented, the pace of liquidity growth could gradually rise again, supported by the resumption of private credit expansion, which can act as a factor supporting stock prices. It means that acceleration of liquidity growth is possible through private autonomous credit creation.

The lending attitude of U.S. commercial banks is also favorable. The prolonged capital investment cycle combined with inventory replenishment demand supports corporate loan demand. It is highly likely that private credit expansion will not end in the short term.

The financial conditions index compiled by Bloomberg and Goldman Sachs indicates that the current financial environment is the most favorable in the past 20 years. The maintenance of an environment conducive to private liquidity procurement also implies a comfortable environment for the virtuous cycle of autonomous liquidity expansion in the future. From a stock market perspective, there is no need to worry excessively about the slowdown in the growth rate of base money due to tapering implementation.

◆ Jo Byung-hyun, Researcher at Yuanta Securities = On the 28th, the European Parliament passed the European Climate Law. This law was enacted with the goal of reducing the European Union (EU)'s net greenhouse gas emissions by at least 55% compared to 1990 levels by 2030 and achieving carbon neutrality by 2050. It also aims for negative carbon emissions after 2050.

To meet the reduction obligations, the strengthened Eurozone policy package 'Fit for 55' will soon be announced. This policy package is expected to include revisions to the greenhouse gas trading system, amendments to renewable energy directives and energy efficiency directives to achieve the 2030 climate targets, methane emission reduction guidelines for the energy sector, and revised carbon dioxide emission standards for new passenger cars and light commercial vehicles. In particular, the Carbon Border Adjustment Mechanism (CBAM), which includes provisions on carbon border taxes, will be announced. It is scheduled to be partially introduced from 2023, initially targeting steel, cement, fertilizer, aluminum, and electricity sectors.

The introduction of the carbon border tax and the resulting industrial cost burden have become a fait accompli. Looking at the recent price trends of carbon emission permits in the Eurozone, they have shown a different pattern from the past trajectory that reflected economic conditions, surging sharply last year. In early May, the cumulative increase rate compared to the beginning of the year reached the 70% range. Although the recent upward trend has somewhat slowed, prices continue to fluctuate near the peak without easily falling. Ultimately, as CBAM is introduced, the prices of emission permits in regions outside Europe are also expected to rise, increasing the burden. This will prompt trading partner companies to pay more attention to and improve their responses to environmental issues.