[Good Morning Stock Market] Market Direction Determined by Changes in Chinese Stock Market After Rising Start

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] On the 18th, the direction of the Korean stock market is expected to be determined according to changes in the Chinese stock market following the announcement of Chinese economic indicators.

Seo Sang-young, a researcher at Mirae Asset Securities, said, "The rise in the U.S. stock market due to solid retail sales, favorable earnings announcements, and expanded efforts to pass the infrastructure investment bill is positive for the Korean stock market. However, the fact that retail sales excluding the energy sector have not shown a clear increase and economic indicators such as consumer sentiment are weak is a burden." He added, "In particular, the Atlanta Federal Reserve Bank president's continuous downward revision of the forecast for U.S. GDP growth in Q3 to only 1.2% and ongoing concerns about economic slowdown are also burdensome factors."

He continued, "Considering this, the Korean stock market is expected to start slightly higher but with a high possibility of profit-taking. If the Chinese real economy indicators announced during the trading session after the opening show significant slowdown, it could further stimulate expectations for a rate cut by the People's Bank of China, so the Korean stock market will be influenced by changes in the Chinese stock market according to Chinese indicators." He emphasized the need to pay attention to the expected slowdown in China's Q3 GDP growth rate, industrial production, and fixed asset investment compared to the previous month.

On the 15th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 35,294.76, up 382.20 points (1.09%) from the previous session. The Standard & Poor's (S&P) 500 index rose 33.11 points (0.75%) to 4,471.37, and the Nasdaq index, focused on technology stocks, ended trading at 14,897.34, up 73.91 points (0.5%) from the previous session.

Investors focused on corporate earnings announcements and economic indicators such as retail sales. Before the market opened, Goldman Sachs' earnings once again exceeded market expectations, improving investor sentiment. The surprise increase in U.S. retail sales in September also boosted investor sentiment. The U.S. Department of Commerce announced that September retail sales rose 0.7% from the previous month. U.S. import prices in September increased by 0.4% month-on-month, reversing the previous month's 0.3% decline. Energy import prices rose 3.7% month-on-month, driving the increase in import prices.

Kiwoom Securities forecast that the domestic stock market this week will show an upward trend with higher lows, influenced by macro events such as whether inflation anxiety eases, manufacturing PMI results of major countries, and domestic export-import results for October (~20th). With heightened expectations for the U.S. Q3 earnings season, this U.S.-originated positive momentum is also expected to positively influence market participants' outlook for the domestic Q3 earnings season (weekly KOSPI expected range 2950~3090).

It is still difficult to say that the inflation issue caused by supply shortages has completely disappeared as a negative factor. As confirmed by the September retail sales surprise that drove the U.S. stock market rally on the 15th, it is necessary to note that demand from real economic agents remains solid. This suggests that the possibility of stagflation, as some have raised despite high current and future inflation expectations, is low. Of course, caution regarding whether supply shortages ease in the preliminary manufacturing PMI data of major countries such as the U.S. and Eurozone, scheduled for release on the 22nd, is expected to continue during the week. However, it is important to remember that inflation supported by demand is also inherent. Furthermore, considering that market participants will gradually become accustomed to inflation as a factor, it is appropriate to avoid excessively perceiving inflation as a negative factor.

Han Ji-young, a researcher at Kiwoom Securities, said, "Despite the base effect, lingering impact of the Delta variant, and concerns about margin contraction due to inflation, the current U.S. Q3 earnings season is progressing better than expected, contributing to the recovery of risk asset preference." She explained, "What can be confirmed through this is that the recent corrections in major countries' stock markets since the end of September were caused by sentiment contraction rather than fundamentals (sentiment contraction can create rapid downward pressure on the stock market in a short period, but conversely, the stock market tends to recover quickly when sentiment improves)."

She added, "Like the U.S., although the annual profit level-up trend remains valid, expectations for the domestic Q3 earnings season are not high, and concerns about inevitable downward revisions of profit forecasts persist. However, since these concerns have been partially reflected in stock prices since the end of the Q2 earnings season last summer, if many companies report earnings surprises in the Q3 earnings season or if the extent of downward revisions in profit forecasts is less severe than expected, earnings momentum will be reestablished, which will be a factor opening the upper range of the domestic stock market in the future."