[Good Morning Stock Market] US Stocks 'Jittery' Over OPEC+ Production Cuts... Concerns Over Economic Slowdown Persist

Nasdaq Index Closes Down 0.25%
Intraday Treasury Yields Rise on OPEC+ Production Cut Decision

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] The U.S. stock market closed lower following OPEC+’s production cut decision and the release of solid U.S. economic data. However, the decline narrowed compared to early trading due to policy responses to the production cut decision and growing concerns over a recession. Market participants, considering the detailed components of the economic data, appear to be increasingly expecting the Federal Reserve (Fed) to moderate its interest rate hikes as signs of economic slowdown become evident.

Sangyoung Seo, Research Fellow at Mirae Asset Securities: “U.S. stock market’s early sharp decline narrowed; slight rise expected in domestic market”

On the previous day, the U.S. stock market showed a decline of over 2% in early trading as international oil prices rose following OPEC+’s announcement of a 2 million barrel production cut and solid economic data. However, expectations for significant inflation easing emerged through detailed data components, leading the Nasdaq index to narrow its decline to 0.25% by the close. The Dow Jones Industrial Average fell 0.14%, and the S&P 500 index dropped 0.2%.

Looking at the economic indicators, the ISM Services Index was released at 56.7, slightly below the previously announced 56.9 last month. U.S. private sector employment according to the September ADP report was 208,000, exceeding August’s 185,000, but the three-month average was 196,000, marking the slowest growth since February last year. Wages for job changers were revised down from 16.2% year-on-year to 15.7%, the largest slowdown in three years. The deceleration in wage growth for job changers implies a slowdown in the consumer price index, indicating that the recent economic data reflect reduced inflationary pressures and ongoing concerns about economic slowdown.

OPEC+’s announcement of a 2 million barrel production cut led to increases in international oil prices and global interest rates, heightening inflation concerns. However, the U.S. stock market stabilized after the U.S. announced it would release a large amount of strategic petroleum reserves next month to curb rising oil prices.

Considering this, the domestic stock market is likely to start with a slight rise. Positive sentiment toward related sectors has grown, as Morgan Stanley forecasts a significant increase in semiconductor demand next year. Positive outlooks for sectors that had led the weakness in the Korean stock market could drive overall index gains.

Dongrak Gong, Researcher at Daishin Securities: “U.S. economy expected to enter a slowdown phase in the second half of the year”

The weakened U.S. economic data is particularly notable as it was released shortly after the September FOMC (Federal Open Market Committee), where the Fed revised its economic outlook to expect worse growth and unemployment rates than previously forecast. According to the Department of Labor’s Job Openings and Labor Turnover Survey, U.S. job openings in August totaled 10.05 million, down 1.117 million from the previous month.

The Federal Reserve has sharply lowered its GDP growth forecast for this year from 1.7% to 0.2%, while raising its unemployment rate forecast to 3.8% for this year and 4.4% for next year. Considering that the U.S. economy showed positive growth in the first half compared to the previous year, this reflects concerns about contraction in the second half. The unemployment rate forecast for next year exceeds the Fed’s estimate of the natural unemployment rate at 4%.

The U.S. economy is expected to enter a slowdown phase in the second half of the year. Since the post-COVID-19 economic cycle has entered a downturn phase, and the effects of high inflation and repeated Fed monetary tightening could spread to the real economy. The recent weak economic data signals not only slower economic growth but also a potential significant slowdown in employment.