[Good Morning Stock Market] "Domestic Stock Market Expected to Start Lower Amid Recession Concerns and Strong Dollar"

[Image source=EPA Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] On the 5th (local time), the U.S. stock market closed mixed amid concerns over an economic recession. The Dow Jones Industrial Average fell 129.44 points (0.42%) to 30,967.82, the large-cap focused S&P 500 rose 6.06 points (0.16%) to 3,831.39, and the tech-heavy Nasdaq index gained 194.39 points (1.75%) to 11,322.24. The U.S. stock market, which started lower due to recession fears, reversed to a rise in the Nasdaq as expectations for a ceasefire between Ukraine and Russia increased and positive news related to cloud computing emerged.

Ongoing recession concerns are expected to weigh on the domestic stock market. Additionally, the strengthening of the dollar may negatively impact foreign investors' supply and demand. Therefore, on the 6th, the domestic stock market is expected to start lower and move while paying attention to the direction of the foreign exchange market.

◆ Seo Sang-young, Head of Media Content Division at Mirae Asset Securities = Andrew Bailey, Governor of the Bank of England (BOE), highlighted that the global financial situation has significantly deteriorated, and through the Financial Stability Report, expressed concerns about further turmoil in commodity markets and sharp adjustments in risk assets, which could worsen the global and UK economies. Western countries' sanctions on Russia have caused a sharp rise in natural gas prices, which is presumed to have negatively affected the economies of the UK and the Eurozone.

However, the possibility of a ceasefire in the Ukraine war influenced the rise in the U.S. stock market. As Russia's initial strategic objective of occupying the Donbas region became more realistic, some raised the possibility of a ceasefire. Although Ukrainian President Volodymyr Zelensky and UK Prime Minister Boris Johnson dismissed ceasefire possibilities, international oil and grain prices plummeted. Additionally, defense sectors in the U.S. stock market fell sharply, while travel and airline sectors showed strength, suggesting that the financial market is highly anticipating a ceasefire. As inflation concerns eased, tech stocks showed strength. Furthermore, growth expectations related to cloud computing were highlighted, leading to a significant rise in related sectors. Nvidia recorded gains of over 3% after news emerged that Meta Platforms intends to increase GPUs used in data centers fivefold.

Concerns over a European recession, which caused the U.S. stock market to fall about 2% in early trading, are expected to weigh on the domestic stock market due to high export dependence and potential investment sentiment contraction. The continued strength of the dollar is also expected to lead to a roughly 0.7% decline at the domestic market's opening. However, the decline in international oil and grain prices due to ceasefire prospects has raised expectations for inflation easing, which is expected to limit the decline and reduce losses mainly in tech stocks, especially in the semiconductor sector.

◆ Seo Jung-hoon, Researcher at Samsung Securities = The U.S. stock market rose mainly in tech growth stocks that had experienced significant declines. The continued decline in market interest rates influenced the upward trend.

On the 5th, West Texas Intermediate (WTI) crude oil for August delivery on the New York Mercantile Exchange (NYMEX) closed at $99.50 per barrel, down 8.2% ($8.93) from the previous trading day. The weakness in international oil prices led to a simultaneous rise in travel and airline stocks.

Unlike the decline in international oil prices and interest rates, the continued strength of the dollar may be a disappointing factor for the domestic stock market. Foreign investor demand typically stands out during periods of dollar weakness. It is necessary to prepare for the possibility that the market will continue to be driven by individual stocks for the time being.