[Good Morning Stock Market] "Dollar Strengthens Further, Electric Vehicle Sector Declines... Watch for Increased Volatility This Week"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jaehee] The U.S. stock market closed mixed. While some tech stocks declined amid the digestion of the employment report results, including a strong dollar and a sharp rise in Treasury yields, the financial and energy sectors showed strength, resulting in a mixed close with the Dow up 0.23%, Nasdaq down 0.50%, and S&P 500 down 0.16%.

Despite the employment report results exceeding expectations and analyses suggesting that the Fed's aggressive tightening pace could accelerate, the mixed close is positive for the Korean stock market. However, the expansion of the dollar's strength and the highlighted possibility of selling pressure on the secondary battery sector?which had driven the Korean market's rise due to declines in electric vehicle stocks like Tesla and NIO?are expected to cause the Korean market to start slightly lower today.

◆ Seosangyoung, Head of Media Content Division at Mirae Asset Securities: "Expansion of Dollar Strength and Increased Selling Pressure on Secondary Battery Sector... Slightly Lower Start Expected"

On the 8th, the KOSPI index is expected to start slightly lower.

Last Friday, the Korean stock market rose as the dollar's strength eased, with foreigners net buying for seven consecutive trading days, reflecting favorable supply and demand factors. Although U.S.-China tensions persist, expectations for the U.S. Inflation Reduction Act have brought positive sentiment to the market environment. Furthermore, ahead of the U.S. consumer price index announcement, expectations for the Fed to moderate its rate hike pace also had a favorable impact. Supported by these factors, the KOSPI closed up 0.72%, and the KOSDAQ rose 0.79%.

Meanwhile, despite the U.S. stock market closing mixed after the employment report results significantly exceeded expectations?raising concerns that the Fed's aggressive tightening pace could accelerate?this is expected to have a positive effect on the Korean market. Although tightening concerns emerged, the easing of recession fears is favorable. Additionally, although the U.S. stock market closed mixed near the flat line, the small- and mid-cap Russell 2000 index showed strength with a 0.81% gain, and the Dow Transportation Index rose 0.84%, both indices influencing the Korean market positively.

However, the renewed expansion of the dollar's strength after the employment report is a burden. Moreover, the decline in U.S. and Chinese electric vehicle sectors such as Tesla and NIO has highlighted the possibility of selling pressure on the secondary battery sector, which recently led the Korean market's rise. The semiconductor sector also showed weakness due to Western Digital's poor earnings, with the Philadelphia Semiconductor Index falling 0.91%, adding to the burden. Considering these factors, the Korean market is expected to start slightly lower and show weakness as it digests recent gains.

◆ Han Ji-young, Researcher at Kiwoom Securities: "Volatility Expansion Phase This Week... Recommend Strategy to Change Positions Midweek"

The expected range for the KOSPI index this week is between 2420 and 2540 points. Influenced by domestic supply and demand events such as the aftereffects of the U.S. July employment surprise, U.S. July consumer prices, China's import and export and inflation indicators, MSCI quarterly review, and options expiration, this week is expected to see an expansion in volatility.

On the 5th, U.S. July nonfarm payrolls (528,000) recorded a super surprise, significantly exceeding the forecast (250,000), driven by an increase in service sector jobs (402,000). The recovery of jobs lost during the pandemic in just two and a half years confirms that the U.S. labor market remains robust despite a slowdown in real demand. While strong economic indicators tend to be positive for the stock market, this employment strength has proven to be enough to dispel recession fears, increasing bets on a 75 basis point rate hike at the September FOMC.

However, considering that the U.S. stock market, which initially plunged over 1% on the 5th, recovered much of the losses during the session, it is still difficult to say that market sentiment has fully shifted toward anxiety over a giant step rate hike. Furthermore, with the U.S. July inflation data (on the 10th) expected this week, it does not seem necessary to already assume a 75 basis point hike at the September FOMC.

The consensus for U.S. July consumer prices is 8.8%, suggesting a peak-out from June's 9.1%, and unlike before, the possibility of exceeding consensus seems low. However, since the market has largely priced in the June consumer price announcement over about three weeks, if the data aligns with consensus, the market is expected to perceive it more as a short-term fading factor rather than relief. Additionally, considering inflation-related events such as China's producer prices (on the 10th), oil price changes following OPEC and IEA oil market reports (on the 11th), and the University of Michigan's inflation expectations (on the 12th), it seems appropriate as a midweek market response strategy to confirm these scheduled events before changing positions rather than making directional bets early in the week.