[Good Morning Market] Concerns Over Earnings Shock Ahead of US FOMC... Bear Market Rally Turning Point

US Snap Earnings Shock Expected to Weaken Domestic Stock Market Start
Also Anticipation of Rebound Buying

[Image source=Yonhap News]

[Asia Economy Reporter Ji Yeon-jin] On the 25th, the domestic stock market is expected to see increased caution ahead of the U.S. Federal Open Market Committee (FOMC) meeting scheduled for the 27th (local time). This week, another 'giant step' of a 75 basis point rate hike by the U.S. is anticipated, while concerns about an economic slowdown may be triggered by declining earnings of social networking services (SNS) with a high proportion of advertising revenue in the U.S.

The U.S. Dow Jones Industrial Average closed at 31,899.29 on the 22nd (local time), down 137.61 points (0.43%) from the previous session. The Standard & Poor's (S&P) 500 index fell 37.32 points (0.93%) to 3,961.63, and the tech-heavy Nasdaq index closed down 225.50 points (1.87%) at 11,834.11.

The U.S. stock market was dragged down by the news that social media company Snap's quarterly losses and revenue fell short of expectations, causing its stock price to plummet more than 39%. Snap was the first among companies highly dependent on digital advertising revenue to report earnings, raising concerns about the earnings outlook for other tech companies reliant on advertising revenue. Heightened caution toward tech companies ahead of earnings announcements from Microsoft, Meta (Facebook), Apple, and Amazon could act as a factor dampening investor sentiment in the domestic stock market.

◆ Sangyoung Seo, Researcher at Mirae Asset Securities = The decline in the U.S. stock market, centered on large tech stocks and the semiconductor sector due to Snap and Seagate, is a burden for the Korean stock market. However, considering that the causes of the U.S. stock market decline were already pre-reflected in the Korean stock market last Friday, the impact is expected to be limited.

The market's focus is on the FOMC results and remarks by Federal Reserve Chair Jerome Powell. Although a 75 basis point rate hike is expected, it is anticipated that the possibility of mentioning aggressive rate hikes will be limited, contrary to market concerns, which should act as a neutral or better factor for the stock market. Considering this, the Korean stock market is expected to start with a decline of around 0.3%, but rebound buying sentiment is also expected to continue.

◆ Yumi Kim, Researcher at Kiwoom Securities = The U.S. dollar weakened amid poor U.S. sentiment indicators, expectations of a slowdown in the Fed's tightening pace, and falling Treasury yields. The U.S. S&P July Manufacturing PMI continued its decline at 52.3, while the Services PMI fell below the baseline (50) to 47.0, reigniting recession concerns. The 1-month NDF USD/KRW rate is expected to open down 4 won at 1,309.9 won, but due to conflicting factors such as dollar weakness and slowing external demand, it is expected to fluctuate within a firm range.

International oil prices fell amid concerns about a global economic recession and weak demand. However, limited expectations for additional production increases from Saudi Arabia curbed the decline. Gold prices rose due to falling U.S. bond yields and the resulting dollar weakness.

Government bond yields also fell domestically following the European Central Bank (ECB) monetary policy meeting and the decline in U.S. Treasury yields. The bond supply burden eased as the government bond issuance plan showed a reduction of 1 trillion won in issuance volume, which also supported bond strength. U.S. Treasury yields dropped sharply as bond demand increased amid heightened recession concerns following the ECB's rate hike. Concerns about a recession due to Europe's energy supply crisis also remain.

◆ Kyungmin Lee, Researcher at Daishin Securities = Despite the shock from the June U.S. Consumer Price Index (CPI), the global stock market, which had shown stability, has entered a critical juncture to determine whether the short-term technical rebound will continue. Since mid-July, major countries' monetary policies, key economic indicators, and Q2 earnings results are being reviewed.

Fortunately, the Q2 earnings season has served as an opportunity to confirm the gap between earnings and stock prices, creating a favorable atmosphere for the stock market. On the other hand, it remains difficult to gauge the direction of global financial markets based on major countries' monetary policies and economic indicators. It is an important moment to see whether the vicious cycle among inflation, monetary policy, and the economy will continue or shift to a virtuous cycle.