[Good Morning Stock Market] "Domestic Market Expected to Start Higher... Samsung Electronics' Preliminary Earnings to Determine Direction"

[Image source=Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] On the 6th (local time), the U.S. stock market closed slightly higher, ending the session near the flat line. The Dow Jones Industrial Average rose 69.86 points (0.23%) from the previous close to 31,037.68, the large-cap focused S&P 500 index closed at 3,845.08, up 13.69 points (0.36%), and the tech-heavy Nasdaq index recorded 11,361.85, up 39.61 points (0.35%). The U.S. stock market, which started higher, soon turned lower but edged up slightly after the Federal Reserve (Fed) reaffirmed its commitment to continue raising the benchmark interest rate to curb inflation.

In the minutes of the June Federal Open Market Committee (FOMC) meeting, participants agreed to continue raising the benchmark interest rate until inflation approaches the 2% target. They indicated rate hikes of 0.5 percentage points or 0.75 percentage points. Although the mention of persistent high inflation in the FOMC minutes was a concern, confidence in the economy had a positive effect.

After the Fed stated through the release of the FOMC minutes that growth in the second quarter of this year would continue moderately, the U.S. stock market showed confidence in the economy. This is expected to be favorable for the domestic stock market on the 7th. Samsung Electronics' preliminary second-quarter earnings and the foreign exchange market, both announced on the day, are also expected to influence the domestic stock market.

◆ Seo Sang-young, Head of Media Content at Mirae Asset Securities = The Fed argued that because high inflation is expected to persist and it may take time to bring it down to the 2% target, it must continue raising the benchmark interest rate. At the June FOMC meeting, there were concerns about a 100 basis points (bp, 1bp=0.01%) rate hike, but there was no mention of this in the minutes. Additionally, the Fed stated that after a contraction in the first quarter, the U.S. Gross Domestic Product (GDP) growth rate would increase moderately in the second quarter, alleviating recession concerns.

The Institute for Supply Management (ISM) reported that the June Services Purchasing Managers' Index (PMI) came in at 55.3, slightly below last month's 55.9 but better than the expected 54.8. Looking at the details, new orders fell from 57.6 to 55.6, and the employment index dropped from 50.2 to 47.4, falling below the baseline, indicating contraction. However, the figure indicating a reduction in employment activity decreased, limiting the possibility of continued employment insecurity. The price index fell from 82.1 to 80.1, still at a high level but showing that downward pressure on prices continues. U.S. job postings in May were below the previous month's figures. However, by sector, manufacturing job postings decreased, but retail-related employment increased, easing concerns about the economy.

The Fed's assertion that second-quarter growth will continue moderately and its confidence in the economy are expected to have a positive impact on the domestic stock market, as economic anxiety was one of the factors driving declines. Also, the NDF (Non-Deliverable Forward) USD/KRW exchange rate showing strength against the dollar suggests that the won's weakness trend may partially ease, which is favorable. Furthermore, with Samsung Electronics' preliminary earnings announced on the day, the domestic stock market is expected to start with about a 0.5% rise and then rebound depending on the foreign exchange market and Samsung Electronics' earnings results.

◆ Han Ji-young, Researcher at Kiwoom Securities = The recent FOMC minutes pointed out the risk of inflation becoming entrenched and mentioned that if high inflation persists, a more restrictive monetary policy would be implemented. This implies that if the U.S. Consumer Price Index (CPI) for June comes out higher than expected, the market might price in a 100bp hike instead of 75bp, and volatility in the stock market would be inevitable during that process. However, considering the sharp drop in energy prices such as oil due to weak demand, the continued downward trend in expected inflation, and the Fed's tightening signals spreading through various economic channels, the likelihood of entrenched high inflation becoming a reality is judged to be low.

On this day, the domestic stock market is expected to rebound due to technical buying following excessive price declines and valuation drops in the previous trading day, along with a calming of the sharp rise in the exchange rate. Additionally, preliminary second-quarter earnings for Samsung Electronics and LG Electronics are scheduled to be announced. Recently, uncertainty surrounding downward revisions of earnings estimates for IT stocks due to weak demand in servers and IT devices negatively affected stock prices, so the preliminary earnings results of these companies are expected to influence the overall market direction.