[Good Morning Stock Market] "Expectations for China's Eased Quarantine Policy... Nasdaq Weakness and Caution on Powell's Speech"

[Image source=Reuters·Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] The U.S. stock market closed mixed ahead of economic indicator releases and Federal Reserve (Fed) Chair Jerome Powell's speech. On the 29th (local time), the Dow Jones Industrial Average rose 3.07 points (0.01%) to close at 33,852.53, while the large-cap-focused S&P 500 index fell 6.31 points (0.16%) to 3,957.63. The tech-heavy Nasdaq index dropped 65.72 points (0.59%) to close at 10,983.78.

Investors showed caution ahead of the release of indicators that help assess the current and future economic situation. On December 1, the PCE Price Index, an inflation indicator, the U.S. October JOLTS (Job Openings and Labor Turnover Survey) report, and the November ISM Manufacturing PMI will be released. The U.S. November employment report is scheduled for release on December 2.

Additionally, on the 30th, Chair Powell is scheduled to speak at an event on economic outlook and labor market hosted by the Brookings Institution, providing insight into the future direction of monetary policy.

China's COVID-19 situation is also a variable. Protests in Beijing, Shanghai, and other cities have raised concerns about the global supply chain. However, expectations of eased quarantine measures are emerging, which could act as a positive factor.

On this day, the domestic stock market is expected to start higher on hopes for China’s relaxation of its zero-COVID-19 policy. However, with the Nasdaq showing weakness and Powell’s speech upcoming, limited market movements are also anticipated.

◆ Seo Sang-young, Head of Media Content at Mirae Asset Securities = The U.S. Consumer Confidence Index weakened from a revised 102.2 last month to 100.2. The Present Situation Index declined from 138.7 to 137.4, and the Expectations Index contracted from 77.9 to 75.4. This indicates that the economy has lost momentum, with the Expectations Index falling below 80, a level that signals a possible recession. The Consumer Confidence Index shows that the U.S. economy has lost momentum due to reduced income leading to slower consumption, increasing the likelihood of a recession. Additionally, news that inflation remains high has weakened momentum due to a stronger dollar and rising interest rates.

Yesterday, the Chinese government announced its COVID-19 policy but stated that insufficient information caused public misunderstanding. It emphasized the need for rapid control and lifting measures in necessary areas and minimizing public inconvenience. Following the protests, rather than tightening controls, measures raising expectations for easing the zero-COVID-19 policy have emerged, boosting risk asset preference and driving gains in Chinese companies listed on the U.S. stock market.

Despite this news, the Nasdaq showed weakness due to declines in individual companies such as Apple, which is expected to negatively impact the domestic stock market. However, since the declines in Apple, Amazon, and Tesla are due to individual factors, the impact on the domestic market is expected to be limited. Furthermore, the Chinese government’s emphasis on communication regarding COVID-19 policy is noteworthy, as it raises the possibility of easing the policy. Considering these factors, the domestic stock market is expected to start up about 0.3% and then fluctuate depending on changes in the Chinese stock market.

◆ Han Ji-young, Researcher at Kiwoom Securities = As estimated from the November U.S. Consumer Confidence Index, current consumption conditions and future consumption outlook are weakening. As the year-end approaches, the effects of interest rate hikes begin to appear, so it is appropriate to keep in mind the possibility that the stock market may enter a phase where 'positive economic indicators lead to positive stock market reactions.'

News that the zero-COVID-19 policy will be abolished circulated among market participants, leading to a significant rebound in Asian markets including domestic and Chinese stocks the previous day. However, according to announcements from Chinese health authorities, there appears to be a gap in understanding. Considering this, Asian markets today are expected to partially retrace gains made on hopes for the abolition of zero-COVID-19. Nevertheless, since a tangible change in the Chinese government’s stance on zero-COVID-19 measures is being detected, the impact of the price retracement is expected to be limited to a short-term reaction.

Today, the domestic stock market is expected to show limited movement, influenced by the retracement of gains from zero-COVID-19 abolition hopes and the continued negative impact of Apple’s shipment decline due to the Zhangzhou factory incident, which weighs on the Nasdaq. Given the increased sensitivity to Fed officials’ remarks, cautious sentiment is expected to prevail during the day ahead of Chair Powell’s speech, limiting price movements of large-cap stocks.