[Good Morning Stock Market] "US Stock Market Mixed Amid Weak Indicators and Economic Slowdown Concerns... KOSPI Likely to Take a Breather"

[Image source=Yonhap News]

[Asia Economy Reporter Park Jihwan] Overnight, the U.S. stock market closed mixed as concerns over weak economic indicators and slowing economic recovery emerged. The domestic stock market is also expected to show a downward trend due to unstable foreign investor flows reflecting negative investment sentiment.

On the 2nd (Eastern Time), at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,838.16, down 97.31 points (0.28%) from the previous session. The Standard & Poor's (S&P) 500 index fell 8.10 points (0.18%) to 4,387.16. The tech-heavy Nasdaq index closed up 8.39 points (0.06%) at 14,681.07.

On July 31, the Chinese National Bureau of Statistics announced that the July China Manufacturing PMI was 50.4, below the previous release of 50.9. Notably, the new orders index (51.5 → 50.9) and new export orders index (48.1 → 47.7), which indicate future outlooks, both showed continuous weakness. Additionally, the U.S. July ISM Manufacturing Index was recorded at 59.5, below last month's 60.6 and the expected 60.8. Most indicators such as new orders and production indices also contracted. U.S. June construction spending increased by only 0.1% month-over-month, falling short of the expected 0.3%. The U.S. stock market showed a tendency to sell off after an initial rise as concerns about slowing economic recovery due to weakening economic indicators from both the U.S. and China increased.

◆ Seosangyoung, Researcher at Mirae Asset Securities = Despite heightened expectations for the passage of the infrastructure investment bill, the U.S. stock market's movement within a narrow range is a burden. Particularly, the fact that U.S. manufacturing indicators fell short of expectations following China's results shows that the slowdown in economic recovery is becoming a reality, which is also a concern. Moreover, considering the sharp declines in government bond yields and international oil prices, indicating increased preference for safe assets, there is a high possibility of foreign investor outflows. This is a supply-demand burden amid persistent factors such as high inflation, slowing growth, and weakening economic stimulus policies, which is expected to cause sensitive reactions to downward pressures.

Of course, since this is a slowdown in economic recovery rather than a recession, and although fiscal stimulus is weakening, the Federal Reserve still prefers a dovish monetary policy, the short-term correction is expected to be limited in scope. Generally, a stock market driven more by individual stock issues than by indices is anticipated. As is typical in the U.S. market, attention should be paid to stocks related to electric vehicles, solar energy, and semiconductors.

◆ Han Jiyoung, Researcher at Kiwoom Securities = The Korean stock market is expected to face downward pressure due to concerns over delayed global economic recovery caused by weak manufacturing indicators from major countries and caution during the Q2 earnings season. As mentioned by a Federal Reserve board member, the timing of tapering may be decided based on U.S. nonfarm employment in August and September, and this expectation is gradually being reflected in the stock market. Therefore, the anticipation surrounding the employment data on the 6th is expected to create a cautious sentiment among market participants, especially foreign investors, from the beginning of the week.

The weak manufacturing indicators from Korea’s export destinations such as the U.S., Eurozone, and China may also act as a short-term burden on export sector stock prices today. However, the weakness in these indicators was mostly slightly below market consensus. The economic normalization centered on developed countries remains valid, so Korea’s exports are expected to continue a solid upward trend. This fundamental strength is expected to support the market’s downside whenever volatility expands in August.