[Good Morning Stock Market] Interest Rate Hike Concerns, Saemaeul Geumgo Risk... KOSPI Weakness Expected

US Stock Market Declines on Strong Employment Data
July FOMC Rate Hike Expected to Remain on Hold Amid Favorable Inflation

The U.S. stock market closed lower as solid private employment data was released, reflecting concerns over rising interest rates. On the 7th, the domestic stock market is expected to show a downward trend due to concerns over interest rate hikes and shrinking investor sentiment following news of Saemaeul Geumgo's insolvency.

Seosangyoung, Head of Media Content Division at Mirae Asset Securities: “Expanding Concerns Over Interest Rate Hikes... Focus on Samsung Electronics Earnings Announcement”

The U.S. stock market saw profit-taking as concerns grew that the Federal Reserve's (Fed) hawkish stance would strengthen following the release of favorable employment data and the ISM services index. The labor market appeared robust, with a significant increase in service-sector jobs, causing the stock market to contract.

[Image source=Yonhap News]

According to the U.S. June ADP private employment report, the number of employed persons was recorded at 497,000, far exceeding the market expectation of 235,000. Leisure and hospitality jobs increased by 232,000, indicating that face-to-face service-related sectors generated employment. On the same day, the June ISM services index was announced at 53.9, surpassing the market expectation of 50.8.

By sector, financial stocks and technology stocks such as semiconductors, which had seen significant gains, showed weakness. The Philadelphia Semiconductor Index fell 1.24% due to declines in Nvidia (-0.5%), Broadcom (-1.6%), and Intel (-1.6%). Amazon (-1.5%), Alphabet (-1.35%), Tesla (-2%), and Ford (-2%) also showed downward trends. Large-cap and small- to mid-cap bank stocks, including BOA (-2.75%), JP Morgan (-0.99%), PacWest Bancorp (-5.23%), and Western Alliance Bancorp (-2.18%), mostly plunged amid concerns over a sharp increase in unrealized losses due to rapid interest rate hikes.

Considering these factors, the domestic stock market is expected to show little upward momentum. In particular, the increased possibility of two additional interest rate hikes, rather than the one expected by the market, is anticipated to dampen overall investor sentiment.

The significant improvement in U.S. face-to-face service employment is a positive factor, as it suggests the U.S. economy could improve centered on consumption. However, the domestic stock market is expected to start with a decline of around 0.5%, showing high volatility as profit-taking desires intensify. The event to watch closely in the domestic market is Samsung Electronics' earnings announcement, which could bring either concerns or optimism about the earnings season depending on the results.

Inamgang, Researcher at Korea Investment & Securities: “Considering Issues Like Saemaeul Geumgo... Bank of Korea to Maintain Hawkish Hold in July”

The Bank of Korea is expected to maintain a hawkish hold stance at the July Monetary Policy Committee meeting. While it will mention uncertainties regarding core inflation trends and the possibility of further Fed rate hikes, it is analyzed that the decision to hold rates will continue.

On the 6th, a notice regarding 'Protection of Savings and Deposits' was posted at the MG Saemaeul Geumgo Gyeonghuigung Branch in Jongno-gu, Seoul. Photo by Yoon Dong-ju doso7@

Above all, the inflation slowdown compared to the U.S. is stable. Recently released headline inflation recorded 2.7% year-on-year, and core inflation was 3.5%. Although uncertainties remain about inflation trends due to public utility fee hikes such as public transportation and water/sewerage charges in the second half of the year, the freeze on electricity rates is expected to partially ease the burden.

Foreign exchange market instability is also limited. Despite concerns over widening domestic-foreign interest rate differentials, foreign capital inflows into the domestic bond market continue due to arbitrage incentives and perceptions of a high exchange rate.

Most importantly, the recent rise in delinquency rates is a factor making interest rate hikes difficult. Despite the government's extension of loan maturity and interest repayment deferral measures for some vulnerable self-employed individuals and small businesses, delinquency rates at commercial banks, savings banks, and credit card companies are on the rise. Due to the recent Saemaeul Geumgo issue, concerns over systemic risk expansion are growing, and it is expected that the government and the Bank of Korea will focus on reducing psychological anxiety and ripple effects.