[Good Morning Stock Market] US Job Market Improves but... Slower-than-Expected COVID-19 Recovery

S&P 500 and Nasdaq Hit New Record Highs for 7 Consecutive Trading Days
OPEC+ Maintains Existing Production Increase Policy... US Strategic Petroleum Reserve Release Expected

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Gong Byung-sun] As the U.S. labor market showed a moderate improvement, the New York stock market continued its upward trend. However, the bond market showed some weakness, raising concerns about the slow recovery from COVID-19.

On the 5th (local time), the New York stock market remained hot. On that day at the New York Stock Exchange, the Dow Jones Industrial Average closed at 36,327.95, up 0.56% (203.72 points) from the previous trading day. The S&P 500 and Nasdaq recorded new highs for the seventh consecutive trading day. The S&P 500 closed at 4,697.53, up 0.37% (17.47 points) from the previous session. The tech-heavy Nasdaq closed at 15,971.59, up 0.20% (31.28 points) from the previous day.

◆ Seo Sang-young, Researcher at Mirae Asset Securities = Overall, U.S. employment is expanding moderately, and the pace of improvement is better than expected. The U.S. nonfarm payrolls for October recorded 531,000 jobs. Notably, the August figure was revised upward from 366,000 to 483,000, and the September figure was revised from 194,000 to 312,000. This indicates a moderate improvement in the employment market uncertainty that the U.S. Federal Reserve (Fed) had been concerned about.

Looking at the details, the private sector recorded 604,000 jobs, with the service sector increasing significantly from 300,000 last month to 496,000. In particular, the leisure and hospitality sector recorded 164,000 jobs, nearly doubling compared to the previous month. The manufacturing sector also doubled from the previous month with an increase of 60,000 jobs, which is estimated to be due to an increase of 28,000 jobs in the automobile and parts sector.

Hourly wages increased by 0.4% month-over-month, meeting expectations. However, on a year-over-year basis, wages rose 4.9%, exceeding the expected 4.8%.

(Provided by Shin Young Securities)

◆ Park So-yeon, Researcher at Shin Young Securities = Last week’s monetary policy meetings of major countries generally maintained an expansionary liquidity phase. Along with Pfizer’s oral COVID-19 treatment and the October employment surprise, the U.S. stock market reached all-time highs. However, the bond market’s trend differs somewhat from the stock market. The yield curve between short- and long-term rates narrowed further, and expected inflation declined further.

Empirically, in such cases, the bond market’s judgment has often been more accurate. Although the U.S. House of Representatives passed an infrastructure investment bill, its scale was reduced compared to the draft, and tax increases are planned to finance it, indicating limitations. Even if Pfizer’s treatment is distributed, the pace of economic normalization is expected to be quite slow. The treatment costs $700 (about 830,000 KRW) and the supply is expected to be only 180,000 sets by the end of this year and 50 million sets by next year.

Investors need to prepare for the “fourth phase.” The fourth phase means acknowledging that COVID-19 is unlikely to end completely and focusing on companies that are aggressively raising prices, stockpiling inventory, and expanding investments. Currently, a rare situation is unfolding globally where production itself must be reduced due to supply disruptions. Reducing production essentially means reduced sales, and the larger the fixed costs, the more operating leverage works inversely. Therefore, companies must actively respond to prevent sales declines.

(Provided by Daishin Securities)

◆ Kim So-hyun, Researcher at Daishin Securities = In November, the Organization of the Petroleum Exporting Countries (OPEC) and the OPEC+ coalition, including Russia and other major non-OPEC oil-producing countries, maintained their existing production increase policy as expected. OPEC+ plans to increase production by 400,000 barrels per day each month until December this year. The production cut target for December is 4,009,400 barrels. After the OPEC+ meeting, international oil prices fell to $78.81 but later recovered to $81.27.

Despite demands from the U.S. and oil-importing countries, OPEC+ maintained its existing production cut plan, presumably because it is satisfied with the current oil price level and expects oil supply and demand to ease next year. Additionally, a lack of capacity to increase production due to reduced spare production capacity is cited as a reason.

Following the OPEC+ meeting, measures by the Biden administration to stabilize oil prices will attract attention. Possible measures include releasing strategic petroleum reserves, banning U.S. crude oil exports, and passing legislation for non-OPEC oil-producing countries. Among these, releasing strategic petroleum reserves is the most reasonable.

However, releasing strategic petroleum reserves alone is unlikely to prevent oil price increases. Considering the amount of strategic reserves already approved by Congress and the mandatory reserve levels, the amount the U.S. can currently release is estimated to be about 60 million barrels. This is only enough to cover three days of U.S. crude oil consumption based on last year’s figures.