[Weekly Market Outlook] Q1 Earnings Season Begins... Samsung Electronics Performance and US Employment Data Key

Provisional Earnings Announcement of Samsung Electronics on the 7th
US March Employment Data in Focus

This week (3rd to 7th), the domestic stock market is expected to show volatility depending on earnings as the Q1 earnings season begins. Market supply and demand are likely to move following the preliminary earnings announcement of the leading stock, Samsung Electronics. Additionally, the U.S. March employment data is also a key focus. The market is expected to find its direction based on Samsung Electronics' Q1 preliminary earnings and the U.S. unemployment rate. Market experts generally anticipate an upward movement in the KOSPI. This is because the liquidity crisis concerns in the banking sector, which had unsettled the market, seem to have somewhat subsided, and attention is expected to shift to fundamentals with the start of the earnings season.

[Image source=Yonhap News]

On the 2nd, securities firms projected the KOSPI's expected band for this week to be between 2380 and 2530 points. Samsung Electronics is scheduled to announce its Q1 earnings on the 7th of this month. Although a significant profit decline due to deteriorating memory segment performance is already a foregone conclusion, if the company’s commitment to curb memory semiconductor price declines through reduced investment and production cuts is confirmed, the stock price could strengthen on expectations of an industry turnaround. Choi Yoo-jun, a researcher at Shinhan Investment Corp., emphasized, "The impact of events grows as the weekend approaches," adding, "April 7th, when Samsung Electronics announces its Q1 earnings, is crucial." He continued, "After Samsung Electronics announced an earnings shock last quarter, the stock price rebounded on hopes for production cuts. Although SK Hynix drew a line against additional production cuts, lowering expectations for domestic companies' cuts, the announcement of Samsung Electronics' preliminary earnings could strengthen market expectations that semiconductor supply and demand will gradually balance." Kim Young-hwan, a researcher at NH Investment & Securities, predicted, "If Samsung Electronics' commitment to curb memory semiconductor price declines through reduced investment and production cuts is confirmed, market optimism about the industry will grow, and the stock market will respond accordingly."

The U.S. March employment data, released on the same day, is also expected to influence the stock market, particularly regarding whether wage growth slows. The U.S. unemployment rate and wage growth rate are important as they relate to the future direction of service sector prices and ultimately determine the Federal Reserve's (Fed) capacity to respond to the banking sector crisis.

Researcher Choi said, "Although the increase in nonfarm payrolls exceeded market expectations, the hourly wage growth rate slowed, resulting in mixed signals for the February data," adding, "There is a high likelihood that the link to easing inflationary pressure will be found in wages, and if the slowdown continues, it will support a moderation in the pace of tightening."

In addition, economic indicators from major countries are scheduled to be released and should be closely watched. On the 3rd, South Korea's March trade data and manufacturing Purchasing Managers' Indexes (PMI) from major countries such as China, Germany, and the U.S. will be announced. Given the ongoing sluggishness in South Korean trade and major countries' manufacturing sectors, the prevailing analysis is that there will be little change this time as well. However, if the PMI confirms a slowdown in demand in the service sector, which is cited as a cause of inflation, the stock market could react significantly.

Overall, many expect an upward movement in the KOSPI. Jo Byung-hyun, a researcher at Daol Investment & Securities, forecasted, "With improved fundamentals, foreign investor demand is also improving, forming a directional trend that could ease short-term burdens and extend the upward momentum." Shin Seung-jin, a researcher at Samsung Securities, said, "Macro risks such as the Silicon Valley Bank (SVB) crisis and U.S. interest rate hikes are diminishing, and with no Federal Open Market Committee (FOMC) meeting in April, the macro impact on the market will lessen," adding, "It is important to closely watch the semiconductor sector, which is crucial for exports, and the KOSPI could improve accordingly." Researcher Choi noted, "The daily trading volume of the KOSPI and KOSDAQ has exceeded 20 trillion won, indicating a boom based on trading volume," and added, "Last week, the major change was the return of program trading inflows; if this inflow continues, further KOSPI gains can be expected."

However, many also emphasize the need for caution. Kim Yumi, an economist at Kiwoom Securities, said, "The U.S. economic indicators to be released this week will show mixed trends," adding, "Employment data will show the labor market remains robust, but at the same time, the manufacturing index is likely to decline again, weakening expectations for production activity." She continued, "The combination of mixed indicators may help reduce anxiety in financial markets, but since the embers of the banking crisis remain, optimistic judgments should be approached with caution."

Jung Yong-taek, an economist at IBK Investment & Securities, also said, "Uncertainty about whether interest rate hikes have ended has not yet disappeared, but expectations for rate cuts are being reflected in the stock market," adding, "Inflationary pressures remain high, and since the timing for monetary easing is still far off, the market is likely to continue reacting sensitively to economic data releases and expectations for rate cuts for some time."