[Good Morning Stock Market] Kospi Expected to Start Lower... Impact of US Regional Banks and Debt Ceiling Negotiations

Preference for Safe-Haven Assets Rises... Concerns Over Economic Recession Persist
Possibility of Short-Term Financial Market Volatility

On the 12th, the domestic stock market is expected to start slightly lower. Concerns over U.S. regional banks and anxiety surrounding the debt ceiling negotiations are anticipated to lead to selling pressure.

In the New York stock market, major indices closed mixed amid renewed worries about regional banks, uncertainty over federal government debt ceiling negotiations, stable producer prices, and strong performances by Alphabet and Amazon. On the 11th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 221.82 points (0.66%) to 33,309.51, the Standard & Poor's (S&P) 500 index dropped 7.02 points (0.17%) to 4,130.62, while the Nasdaq index rose 22.06 points (0.18%) to 12,328.51.

[Image source=Yonhap News]

Sector-wise, the market was also mixed. Three sectors rose, while eight sectors declined. Among the 11 sectors comprising the S&P 500, communication services (1.65%), consumer discretionary (0.55%), and consumer staples (0.31%) increased, whereas energy (1.24%), utilities (1.14%), real estate (1.02%), and financials (0.2%) declined.

Among individual stocks, tech giants showed mixed results. Apple’s stock rose 0.11%, Alphabet increased 4.41%, Meta gained 1.16%, Amazon climbed 1.81%, and Netflix went up 2.78%. Conversely, Microsoft fell 0.7%. Electric vehicle makers Tesla rose 2.10%, and Nikola increased 3.75%. Lucid Group dropped 1.4%, and Rivian declined 1.91%. Walt Disney fell 8.73% despite solid quarterly results, due to news of a decline in streaming subscribers.

The U.S. stock market’s sluggishness, despite price stability, due to renewed regional bank concerns and political division over the debt ceiling, poses a burden on the domestic market. Although the Nasdaq managed to turn positive, this is believed to be mainly due to consecutive strong performances by Alphabet and Amazon, limiting its overall impact.

Sangyoung Seo, a researcher at Mirae Asset Securities, said, “The global financial market is currently focused on the debt ceiling negotiations between the White House and congressional leaders scheduled for Friday, increasing the preference for safe assets. Considering ongoing concerns about a recession, the Korean stock market is expected to start lower and continue to see selling pressure.”

Economic indicators to be released in the U.S. next week are expected to show mixed results. While the manufacturing sentiment in the New York region has fallen below the baseline again, industrial production is slowing month-over-month, and housing starts and existing home sales have recorded month-over-month declines, raising concerns about the housing market. On the other hand, U.S. retail sales for April are forecasted to increase by 0.7% month-over-month, reversing the 0.6% decline in March.

The rise in gasoline prices, which has led to increased sales at gas stations and automobile dealerships, is expected to be a major contributing factor. Even excluding automobile and gas station sales, retail sales are projected to rise 0.2% month-over-month, indicating that consumption remains relatively healthy according to financial markets.

Yumi Kim, a researcher at Kiwoom Securities, stated, “The debt ceiling negotiations between the U.S. president and Congress, originally scheduled for this week, have been postponed to next week, so friction related to the debt ceiling talks will continue to be a major factor in financial markets next week.” She added, “Since there has been no past case where debt ceiling issues led to a default, it is highly likely that negotiations will proceed with extensions of the debt ceiling suspension period, but friction during the process seems inevitable.”

She further explained, “Based on previous cases, political interests are involved, so rather than reaching an easy agreement, the process has always involved increasing market anxiety before finding a compromise. This pattern may repeat this time as well, so short-term market noise should be taken into consideration.”