[Good Morning Stock Market] US Debt Ceiling Increase Process Begins... "KOSPI Starts Up, Then Volatility Rises"

U.S. President Joe Biden is speaking on the final agreement to raise the debt ceiling on the 28th (local time) in the Roosevelt Room of the White House in Washington, DC. [Image source=AFP Yonhap News]

The domestic stock market is expected to start higher on the 30th. This is because on the 28th (local time), U.S. President Joe Biden and U.S. House Speaker Kevin McCarthy reached a final agreement on raising the debt ceiling. While the U.S. and UK markets were closed, European markets opened higher.

The agreement includes maintaining non-defense discretionary spending until 2025 and extending the debt ceiling increase period until after the 2024 presidential election. Additionally, some funds for tax oversight in the Inflation Reduction Act were removed, and unused COVID relief funds will be reclaimed. The U.S. House will hold an operations committee meeting on the 30th (local time) to begin the legislative process related to the debt ceiling increase agreement.

European markets initially opened higher but turned lower as selling pressure emerged. In particular, major tech stocks including ASML (-0.86%) declined due to profit-taking. Consumer-related stocks such as Prosus (-2.02%), an internet consumer company, and Adidas (-0.75%) also underperformed. Financial stocks followed suit, with Deutsche Bank (-0.56%) and Banco Santander (-1.70%) among those falling.

So far, the market has been influenced by the earnings season and the U.S. debt ceiling negotiation issue. Going forward, attention is expected to focus on recession concerns and whether major central banks will raise interest rates, as the market digests selling pressure.

Currently, there are some concerns. First, U.S. manufacturing indicators are weak. Additionally, following the banking crisis, the decline in the U.S. leading index is increasing again. Germany’s gross domestic product (GDP) growth rate has recorded negative growth for two consecutive quarters, entering a technical recession. If economic issues become prominent, the market is expected to face pressure.

Meanwhile, the Korean stock market is expected to be burdened by the selling pressure from European markets. Just as tech, financial, and some retail sectors led the decline in European markets, profit-taking selling is expected to emerge mainly in related stocks in the Korean market.

Moreover, despite downward earnings revisions, the forward price-to-earnings ratio (PER) for the next 12 months has risen from 10.8 times at the beginning of the year to 13.0 times, increasing valuation pressure. This is the highest level since the summer of 2021.

Seosangyoung, a researcher at Mirae Asset Securities, noted, "If the market’s focus shifts to the economy and the Federal Reserve’s interest rate hikes, it could burden foreign demand in Korea, which is highly dependent on exports." He added, "Considering this, the Korean stock market is expected to start about 0.7% higher but show high volatility due to profit-taking selling."