[Good Morning Stock Market] "Inflow of Bargain Hunting Due to Excessive Decline... Domestic Stock Market Attempts Rebound"

[Image source=AP Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] On the first trading day of October, the U.S. stock market closed higher. A rebound buying trend was confirmed following last month's plunge. Throughout September, the Dow Jones Industrial Average fell 8.8%, the S&P 500 dropped 9.3%, and the Nasdaq Composite declined 10.5%. On the 3rd (local time), the Dow Jones Industrial Average rose 765.38 points (2.66%) from the previous close to 29,490.89, the large-cap-focused S&P 500 increased 92.81 points (2.59%) to 3,678.43, and the tech-heavy Nasdaq Composite gained 239.82 points (2.27%) to 10,815.44.

The U.S. 10-year Treasury yield declined after the UK government announced it would not proceed with plans to abolish the 45% top income tax rate amid its tax cut policy, easing uncertainty. The British pound slightly appreciated, while the U.S. dollar weakened.

Economic indicators were mixed. The final seasonally adjusted U.S. manufacturing Purchasing Managers' Index (PMI) for September, released by S&P Global, stood at 52.0, maintaining an expansion phase. Conversely, the Institute for Supply Management (ISM) manufacturing PMI fell from 52.8 in August to 50.9 in September.

However, remarks supporting the continuation of tightening policies persisted. John Williams, President of the Federal Reserve Bank of New York, stated, "The Fed's efforts to slow demand, including mortgage rates and stock market declines, are showing some effect," and emphasized the need to maintain higher interest rates for a longer period to achieve the inflation target. The Fed raised the benchmark interest rate by 0.25 percentage points in March, followed by 0.5 points in May, 0.75 points in June, 0.75 points in July, and 0.75 points in September this year.

On the 4th, the domestic stock market is expected to rise influenced by the global market's gains. It is anticipated to attempt a technical rebound and bargain hunting due to oversold conditions.

◆ Kim Seok-hwan, Researcher at Mirae Asset Securities = The U.S. ISM manufacturing PMI for September recorded 50.9, down from 52.8 in August. This is the lowest level since May 2020, indicating a continued downward trend, which is a concern. Notably, new orders dropped to 47.1 compared to the previous month, the lowest since the early pandemic period. This reflects companies adapting to potential future demand declines, with increasing cases of order cancellations amid growing fears of a global recession.

Additionally, the UK government announced on the 23rd of last month that it would withdraw the 45% tax cut benefit for the highest earners, worth about 2 billion pounds, from a roughly 45 billion pound tax cut package. This decision led to a rise in the pound's value and a decline in the UK 10-year government bond yield. However, since the tax cut for the highest earners constitutes a relatively small portion of the total, the effect is expected to be limited. The consensus is that as long as fiscal policy continues in a direction contrary to monetary policy, the UK's crisis will persist.

A recent Bloomberg survey found that two-thirds of respondents expect the dollar to reach new highs next month. This is due to expectations that the dollar will serve as a safe haven amid market turmoil and the Fed's tightening stance pushing U.S. benchmark interest rates higher.

However, a sharp rise in the dollar's value exacerbates economic difficulties by increasing import food and fuel prices in advanced and emerging countries outside the U.S. It also burdens many central banks that have raised benchmark rates to curb consumer price surges. The United Nations Conference on Trade and Development (UNCTAD), a UN agency, warned in its annual International Economic Outlook report that central bank rate hikes will severely impact low-income countries and push the global economy into recession. The report estimates that a 1 percentage point increase in the Fed's benchmark rate would reduce GDP by 0.5% in other advanced countries and 0.8% in developing countries over the following three years.

On this day, the domestic stock market is expected to show a favorable performance due to improved investor sentiment from the global market's strength. It is likely to attempt bargain buying and a technical rebound due to oversold conditions. In particular, Hyundai Motor and Kia, which posted strong earnings, are expected to positively influence investor sentiment. The sharp rise in international oil prices is also anticipated to strengthen buying interest in the refining sector.

◆ Han Ji-young, Researcher at Kiwoom Securities = Unlike the consecutive sharp declines, the significant rebound in the U.S. stock market the previous day partly reflected the perception that some bad news had been priced in, but also the renewed expectations for Fed policy adjustments played a role.

Attention should be paid to the significant slowdown in key subcomponents such as new orders and employment in the September ISM manufacturing index, a leading indicator of economic growth. Although the risk of contagion is not yet large, issues such as the Credit Suisse crisis involving financial soundness and the partial withdrawal of the UK government's tax cut plan indicate that side effects and countermeasures of central bank tightening are already emerging outside the U.S.

As the UN Secretary-General has urged a halt to central bank rate hikes, it is expected that if aggressive rate hikes continue, side effects will frequently appear. It is considered appropriate to keep open the possibility of changes in the pace of policies by the Fed and other central banks.

The domestic stock market is expected to rebound as it absorbs external events during the market closure period amid technical buying due to perceptions of excessive recent declines, despite continued deficits for six consecutive months and weak exports in September.

Although major items such as semiconductors and petrochemicals showed weakness in September export data, attention should be paid to the stock price rebound of automobiles, auto parts, and secondary battery-related stocks, which showed improvement due to easing supply shortages and strong demand. However, the rebound momentum of secondary battery-related stocks is expected to be limited due to the aftershocks of Tesla's Q3 delivery shock this year, which caused a sharp decline.