[Good Morning Stock Market] Fed Officials Hint at Tapering...All Eyes on Powell's Words

Already a foregone conclusion that tapering will be implemented within the year, so impact expected to be limited
Concerns over global supply bottlenecks due to lockdown measures at Chinese ports and ASEAN region

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Gong Byung-sun] U.S. Federal Reserve (Fed) officials, ahead of the Jackson Hole Symposium, advocated for the implementation of asset purchase tapering, causing the U.S. stock market to underperform. On the 27th, all eyes are on Fed Chair Jerome Powell’s remarks at the Jackson Hole Symposium. Meanwhile, opinions were also presented that global supply chains need to be closely monitored due to shocks caused by the resurgence of COVID-19.

On the 26th (local time), the New York stock market closed lower across the board. At the New York Stock Exchange, the Dow Jones Industrial Average fell 0.54% (192.38 points) from the previous trading day to close at 35,213.12. The S&P 500 index closed down 0.58% (26.19 points) at 4,470.00. The tech-heavy Nasdaq closed down 0.64% (96.05 points) at 14,945.81.

◆ Sangyoung Seo, Researcher at Mirae Asset Securities = On the 26th, Robert Kaplan, President of the Dallas Federal Reserve Bank, argued that tapering should be announced in September. He also mentioned that he has not seen any factors that would change the outlook and that the Fed is ready to begin tapering. Previously, on the 20th, he had stated that if the COVID-19 Delta variant adversely affects the economy, tapering should be postponed.

Meanwhile, Esther George, President of the Kansas City Federal Reserve Bank, argued that since there has been significant additional progress toward the Fed’s preconditions for tapering, tapering should be discussed and implemented early. James Bullard, President of the St. Louis Federal Reserve Bank, also emphasized that recent data have exceeded the Fed’s targets by too much, so tapering should be implemented immediately and concluded by March next year.

As Fed officials actively advocate for early tapering, the remarks of Fed Chair Jerome Powell at the Jackson Hole Symposium on the 27th are drawing even more attention. The market expects that even if tapering is mentioned, its impact will be limited since the Federal Open Market Committee (FOMC) minutes have already made in-year implementation a foregone conclusion. Instead, more focus is expected on his views regarding inflation and employment.

(Provided by Yuanta Securities)

◆ Sunyoung Ko, Researcher at Yuanta Securities = Recently, COVID-19 has resurged mainly in ASEAN regions such as China, Vietnam, and Malaysia, causing risk factors related to bottlenecks. If supply disruptions due to logistics delays prolong, they could act as additional inflationary pressures, making it necessary to closely monitor related trends as a key variable in global stock markets.

Container ports in China were closed twice, in May and this month, causing disruptions in global maritime freight transport. Recently, a COVID-19 case was confirmed at Ningbo-Zhoushan Port in China, leading to a partial closure. In May, Shenzhen Port was also closed for similar reasons. Of the 349 vessels anchored at major container ports worldwide, Chinese ports account for a significant portion at 43.3% (151 vessels).

Delays in maritime freight transport due to congestion in Chinese waters have inevitably increased shipping costs. On the 20th, the Shanghai Containerized Freight Index (SCFI) reached 4,340.18 points, the highest since statistics began in 2009.

Widespread lockdown measures across the ASEAN region are also factors prolonging global supply bottlenecks. Malaysia and Vietnam, where COVID-19 cases are surging, are implementing stringent quarantine measures to curb the spread. This has increased the likelihood of production disruptions, especially for products that are among the top exports of each country, such as electronics and automotive parts.

(Provided by Kiwoom Securities)

◆ Yumi Kim, Researcher at Kiwoom Securities = Next week, many key economic indicators are scheduled to be released in financial markets, raising renewed interest in the global economic outlook.

In China, the August Purchasing Managers’ Index (PMI) for manufacturing and services will be announced. According to market consensus, the downward trend is expected to continue following last month. This is due to weak demand caused by a policy momentum gap, concerns over the spread of COVID-19, and cost burdens from rising raw material prices. However, expectations for government stimulus policies may limit the negative impact on financial markets.

In the U.S., the August Institute for Supply Management (ISM) manufacturing index and employment report are important. The consensus for the ISM manufacturing index is a slight decline. This is due to concerns over demand slowdown from the resurgence of COVID-19 and the possibility of Fed tapering. Since the index remains above the baseline of 50, positive sentiment is still high, but a decline in the ISM manufacturing index could be interpreted by the market as a slowdown in economic momentum.