[Good Morning Stock Market] US Stock Market Closed for Labor Day... China Supporting Small and Medium Enterprises

China State Council Increases Annual Loan Quota for SMEs by About 54 Trillion Won
Bond Yields on US Long-Term Securities Expected to Rise Until Tapering Starts

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] While the U.S. New York stock market was closed for Labor Day, Asian and European markets rose, supported by China's support measures for small and medium-sized enterprises and improvements in German economic indicators. Bond yields, mainly long-term U.S. bonds, are expected to rise until the actual start of asset purchase tapering.

On the 6th (local time), the New York stock market was closed for Labor Day. On the 3rd, the Dow Jones Industrial Average closed at 35,369.09, down 0.21% (74.73 points) from the previous trading day at the New York Stock Exchange. The S&P 500 index closed at 4,535.43, down 0.03% (1.52 points) from the previous session. The tech-heavy Nasdaq closed at 15,363.52, up 0.21% (32.34 points) from the previous trading day.

◆ Seo Sang-young, Researcher at Mirae Asset Securities = While the U.S. market was closed, Asian and European markets rose. This is presumed to be due to expectations for China's economic stimulus policies and improvements in economic indicators in Europe, including Germany.

Recently, as China's manufacturing and service sector indicators slowed, the Chinese State Council announced last week an increase in the annual loan limit of 300 billion yuan (approximately 53.805 trillion KRW) for small and medium-sized enterprises and support measures for industries affected by COVID-19. Chinese President Xi Jinping also declared the establishment of the Beijing Stock Exchange as part of the reform of the over-the-counter market called 'Xin Sanpan.' This is expected to support the listing of quality small and medium-sized enterprises in the over-the-counter market and serve as a channel for fundraising.

Meanwhile, German factory orders in July increased by 3.4%, slower than the previous month's growth rate of 4.6%, but exceeding the forecast of -0.9%. On an annual basis, this represents a 24.4% increase, which is 15.7% higher than before the pandemic last year. Specifically, domestic orders in Germany decreased by 2.5% compared to the previous month, but foreign orders increased by 8.0%, indicating strong overseas demand.

Additionally, French Finance Minister Bruno Le Maire announced plans to raise the minimum wage starting October 1, which is a positive factor. Le Maire recently argued that inflation is not structural but a result of the country's strong economic recovery, which is also favorable.

(Provided by Korea Investment & Securities)

◆ Ahn Jae-kyun, Researcher at Korea Investment & Securities = Nonfarm payrolls increased by 235,000 in August, falling significantly short of the expected increase of 720,000. The strong employment figures in June and July did not continue into August. This is interpreted as the impact of the COVID-19 Delta variant. Due to the ongoing spread of the pandemic, the increase in new service sector jobs, which exceeded 730,000 in July, dropped to 200,000 in August.

It seems difficult to make significant changes to the Federal Reserve's plan to formalize and start tapering within the year. The labor force aged 20 and over continues to grow steadily, and the proportion of long-term unemployed (over 27 weeks) has begun to decline. However, the prospects for early tapering or steep tapering, as suggested by some, are likely to weaken.

Bond yields, mainly long-term U.S. bonds, are expected to rise until the actual start of tapering. Future Fed tapering prospects are factors affecting Treasury supply and demand. An environment is being created for the long-term duration premium, which greatly influences Treasury supply and demand, to shift to an upward trend. Since the Fed's tapering announcement in October 2013, the 10-year U.S. Treasury yield has been expected to rise by about 40 basis points (1 bp = 0.01 percentage point) through duration premium expansion before the actual start of tapering. However, for this trend to occur, the Fed's tapering announcement is necessary.

(Provided by Kiwoom Securities)

◆ Kim Yumi, Researcher at Kiwoom Securities = The U.S. dollar showed fluctuations in a strong range, partially recovering from the decline caused by the employment shock while the New York stock market was closed. Since then, there has been no particular momentum.

The euro slightly declined against the dollar due to weak economic indicators. The Eurozone's September Sentix Investor Confidence Index was 19.6, below market expectations and the previous month's figure. This acted as a factor weakening the euro.

Aluminum prices rose as expectations for tight supply strengthened. A coup in Guinea, West Africa, increased uncertainty about the supply of bauxite, a raw material for aluminum. Brent crude oil fell after Saudi Aramco announced a price cut for oil sales to Asia in October, weakening expectations for tight supply conditions. However, concerns about supply disruptions in the U.S. due to Hurricane Ida limited the decline.