[Good Morning Stock Market] Powell: 'It's Not Yet Time for Tapering'... Will the Domestic Stock Market Rise?

US Stock Market Rises as Powell Calms Market
Apple Increases Production, Gains Over 2%

Domestic Stock Market Expected to See Expanded Risk Asset Sentiment

[Asia Economy Reporter Minji Lee] There are opinions that the spread of the Delta variant virus will delay the implementation of tightening policies in major countries, including the United States. Considering that Federal Reserve (Fed) Chair Powell signaled on the 14th (local time) that it is not yet time for tapering, and that a resurgence of the Delta variant virus has begun in major European countries, it is analyzed that the necessity for major countries to strengthen the intensity of tightening has decreased.

Sangyoung Seo, Researcher at Mirae Asset Securities: “Domestic stock market expected to benefit from increased Apple production and continued Fed moderate monetary policy”

[Image source=EPA Yonhap News]

On that day, despite profit-taking desires, the U.S. stock market showed a slight upward trend. The expectation of benefits by individual stocks and Fed Chair Powell’s expression of confidence in the economy during the congressional hearing, stating that moderate monetary policy will continue despite inflationary pressures, positively influenced the index rise. Additionally, the expression of confidence in the economy through the Beige Book also contributed to the index increase.

By sector, financial and energy-related stocks continued to show weakness. Citigroup fell 0.29% due to a decline in Treasury yields and higher-than-expected costs, and BOA dropped about 2.5% due to weak sales. BlackRock closed down 3% as profit-taking increased after reporting higher-than-expected earnings and sales. Energy sector stocks such as ExxonMobil (-2%) and ConocoPhillips (-3%) also closed lower due to the decline in international oil prices.

Among individual stocks, Apple’s strength stood out. News that Apple requested a 20% (90 million units) increase in production for the next iPhone model expected to be announced in September pushed the stock to a record high. Although concerns grew that sharp quarterly sales increases and the suspension of additional unemployment benefits could slow demand next year, this supply increase news alleviated such worries, positively affecting investor sentiment. Furthermore, JP Morgan’s opinion to overweight Apple and raising the target price from $105 to $170, anticipating that Apple’s earnings announcement in two weeks will significantly exceed expectations, was also positive.

On that day, the domestic stock market is expected to see improved investor sentiment as news of Apple’s increased production and the Fed’s continued moderate monetary policy flow in. Following Fed Chair Powell’s remarks, the dollar’s weakness widened, and confidence in the U.S. economy increased, which is expected to have a favorable impact on foreign investor flows. Additionally, the GDP growth rate of China, to be announced today, along with solid real economy indicators such as retail sales and industrial production, is also positive.

Sanghyun Park, Researcher at Hi Investment & Securities: “Delta variant virus will delay tightening clock”

Concerns over a resurgence of COVID-19 centered on the Delta variant virus are increasingly likely to temporarily halt moves by major countries, including the U.S., to initiate tightening. This is because concerns about a COVID-19 resurgence could have a limited but negative impact on the temporary economic recovery trend. As seen in South Korea’s possibility of expanding supplementary budgets, the need for additional fiscal stimulus by governments mobilizing finances has increased, lowering the necessity for central banks to hastily switch to a tightening stance.

In the U.S., although the need to demonstrate tightening intentions such as liquidity reduction to curb rapid inflation and asset price overheating has increased, there is a growing need to observe the impact of the Delta variant virus on the country for the time being. Considering that the COVID-19 situation is unfolding differently than expected compared to the June FOMC meeting, it inevitably affects the Fed’s shift to a tightening stance. Fed Chair Powell’s statement in congressional testimony that “the economy needs to improve further before changing the accommodative monetary policy” is evidence of this.

China is also expected to ease the intensity of tightening. It has already cut the reserve requirement ratio, and last month’s total social financing increase and broad money (M2) growth rate exceeded market expectations, signaling somewhat eased liquidity policies. Although export conditions are favorable, domestic demand is recovering more slowly than expected, and considering the global COVID-19 resurgence trend, it is analyzed that the Chinese government or the People’s Bank of China is likely to somewhat ease the tightening stance.