[Good Morning Stock Market] US Stocks Rise as Debt Ceiling Bill Passes House... KOSPI Expected to Strengthen

Passage Through Senate Likely with Democratic Majority
Market Expects June Base Rate to Remain Unchanged

On the 1st (local time), the U.S. stock market closed higher following news that the debt ceiling agreement passed the House of Representatives. The Dow Jones Industrial Average rose 153.30 points (0.47%) to close at 33,061.57, the large-cap-focused S&P 500 index gained 41.19 points (0.99%) to finish at 4,221.02, and the tech-heavy Nasdaq index ended the day up 165.70 points (1.28%) at 13,100.98.

Image source=AFP·Yonhap News

The debt ceiling agreement, reached between U.S. President Joe Biden and Republican House Speaker Kevin McCarthy, passed the full vote in the Republican-majority House of Representatives. A vote in the Senate is expected on the 2nd. Since the Senate is controlled by the Democrats, passage is likely. However, some lawmakers are pushing for amendments, which could introduce uncertainty. The agreement postpones the debt ceiling until January 1, 2025, and includes some government spending cuts.

Market expectations largely favor a pause in the benchmark interest rate. Patrick Harker, President of the Federal Reserve Bank of Philadelphia, indicated that the Fed is close to a point where it can stop raising rates, suggesting a hold on rates today as well. According to the CME FedWatch tool, the federal funds futures market currently prices in about a 76% chance that the Federal Reserve will keep rates unchanged this month, with about a 23% chance of a 0.25 percentage point hike.

The domestic stock market is expected to open higher on the 2nd. The rise in the U.S. market, driven by growing expectations of a Fed rate hold, is likely to have a positive impact. Seosangyoung, Head of Media Content at Mirae Asset Securities, said, "In particular, the dollar weakened significantly and short-term interest rates dropped sharply, which also improved investor sentiment. Supported by this, the decline in the won-dollar exchange rate, i.e., the won's strengthening trend, could positively influence foreign investor flows." He added, "However, ongoing profit-taking sales remain a burden. Considering this, the domestic market is expected to start about 0.7% higher and then fluctuate depending on foreign investor flows amid the won's strengthening trend."

Han Jiyoung, a researcher at Kiwoom Securities, explained, "NVIDIA (5.12%) and the Philadelphia Semiconductor Index (1.55%) rebounded in the U.S. market. Supported by expectations of a rate hold and a decline in the won-dollar exchange rate, the market is expected to open higher." She added, "Considering that the semiconductor sector initially showed weakness early in the previous day but then turned upward, it appears to have maintained its strength as a leading sector for the second half of the year, so buying on dips is recommended. Additionally, the automobile, general machinery, and secondary battery anode material sectors have recorded export growth compared to the same period last year and could benefit from the weaker won-dollar exchange rate, so continuous monitoring is necessary."