[Good Morning Stock Market] Strong US Employment and Tightening Possibility... "KOSPI Expected to Start Lower"

[Asia Economy Reporter Hwang Yoon-joo] On the 6th, the Korean stock market is expected to start lower. This is due to the impact of the U.S. stock market decline, triggered by concerns over tightening after the U.S. employment data significantly improved on the 3rd (local time), and the dollar's strength.

[Image source=Yonhap News]

On the 3rd (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,926.01, down 127.93 points (0.38%) from the previous session. The S&P 500, focused on large-cap stocks, ended at 4,136.48, down 43.28 points (1.04%), and the tech-heavy Nasdaq closed at 12,006.95, down 193.86 points (1.59%).

Seo Sang-young, Head of Media Content at Mirae Asset Securities: "KOSPI expected to start down around 0.7%"

The KOSPI is expected to start down around 0.7%. The U.S. stock market's late-session profit-taking amid dollar strength and a sharp rise in interest rates is likely to weigh on the Korean stock market. This is because the dollar strength and rising interest rate trend may continue for some time, which is negative for foreign investor demand.

The U.S. nonfarm payrolls for January were recorded at 517,000, about three times the forecast (185,000) and about twice the previous month (223,000). The unemployment rate also improved to 3.4%. Hourly wages showed a downward stabilization from 4.9% year-on-year to 4.4%, while weekly working hours increased from 34.4 to 34.7 hours.

Looking in detail, government employment increased by 74,000 due to the end of strikes. Temporary service jobs changed from a decrease of 41,000 last month to an increase of 26,000. Particularly, the leisure and hospitality sector rose from 64,000 to 128,000, and the personal services sector increased by 171,000 month-on-month to 397,000.

Durable goods employment decreased by 21,000 month-on-month, mainly in the automobile industry. The sharp increase in nonfarm payrolls indicates improvement centered on the service sector.

Considering that the U.S. stock market showed declines across most sectors due to late-session profit-taking, the Korean stock market is also expected to undergo a process of absorbing selling pressure.

Mary Daly, President of the Federal Reserve Bank of San Francisco (Photo by Yonhap News)

Han Ji-young, Researcher at Kiwoom Securities: "We must prepare for the possibility of increased uncertainty"

The Korean stock market is expected to be influenced by changes in the interest rate path outlook within the year and major corporate earnings following remarks by Federal Reserve officials.

The market has been betting on a pause in rate hikes after March and rate cuts within the year. This was influenced by the December employment data showing wage inflation and the decline in the December Consumer Price Index (CPI). Although the February Federal Open Market Committee (FOMC) was hawkish, Chairman Powell's use of the term "disinflation" strengthened market participants' expectations.

However, remarks by Fed officials may cause the market to adjust its outlook. A representative example is Mary Daly, President of the Federal Reserve Bank of San Francisco, who said on the 3rd (local time), "The employment numbers are surprising, but it is too early to declare victory in the fight against inflation."

Following this employment report, the probability of a 25 basis point rate hike at the May FOMC, as reflected in the Chicago Mercantile Exchange (CME) FedWatch tool, rose from the 33% range to 59%. Accordingly, the terminal rate is more likely to be 5.25% rather than 5.0%.

Furthermore, after the January rally, both the KOSPI and Nasdaq, among other Korean and U.S. stock markets, face increased short-term valuation pressure, and the poor earnings of U.S. big tech companies may provide justification for position adjustments.

Reflecting on the January market situation, the resilience of stock prices despite earnings shocks from major companies like Samsung Electronics and LG Electronics was due to a favorable macro environment, including expectations of a Fed policy shift. It is necessary to keep in mind that this atmosphere may change in the short term.