[Good Morning Stock Market] "US Unemployment Benefits ↑... KOSPI Expected to Start Higher"

US Stock Market Turns Up Despite National Credit Rating Downgrade
Solid Labor Market Shows Cracks...Concerns Over Exports to the US

[Image source=Yonhap News]

The domestic stock market is expected to start higher on the 4th. This is because the U.S. stock market narrowed its losses as buyers stepped in despite the credit rating downgrade issue the previous day. However, the increase in unemployment claims amid solid U.S. employment is a concern. This could affect the earnings of domestic export companies due to reduced U.S. consumption.

On the previous day (local time), the Dow Jones Industrial Average closed at 35,215.89, down 366.63 points (0.19%) from the previous session. The S&P 500, focused on large-cap stocks, ended at 4,501.89, down 11.50 points (0.25%), and the tech-heavy Nasdaq closed at 13,959.72, down 13.73 points (0.1%).

The U.S. stock market started lower as profit-taking emerged on the pretext of the credit rating downgrade. In particular, short-term Treasury yields fell due to signs of cracks in the labor market. For long-term bonds, confidence in the economy expanded due to solid employment data, digesting the credit rating downgrade issue, and the 10-year Treasury yield rose close to 4.2%. As a result, REITs, financials, and utilities led the decline. Profit-taking continues to limit index gains.

The narrowing of losses in the U.S. stock market is expected to have a positive impact on the domestic market. Additionally, electric vehicle-related stocks showed strength based on solid earnings from some electric vehicle charging station companies, which is also favorable.

However, the fact that the U.S. labor market remains solid but is beginning to show signs of cracks, increasing the possibility of reduced exports to the U.S. due to future consumption declines, is a burden. Furthermore, the sharp rise in U.S. long-term Treasury yields due to bond selling means the credit rating downgrade issue still partially affects investor sentiment negatively.

The U.S. Institute for Supply Management (ISM) reported that the July services index slowed to 52.7 from 53.9 last month. New orders slightly weakened, and the employment index contracted from 53.1 to 50.7. Following the decline in the employment index from 48.1 to 44.4 in the ISM manufacturing index, this shows employment is also contracting in the services sector.

The number of new unemployment claims, which gauges the U.S. unemployment rate, slightly increased. According to the U.S. Department of Labor, new unemployment claims for the week of July 23?29 rose by 6,000 to 227,000 compared to the previous week.

However, compared to the past, new unemployment claims remain at a low level. Even in 2019, when labor market conditions were solid, new unemployment claims averaged around 220,000.

The market is closely watching the U.S. Department of Labor’s July employment report, to be released on the 4th, regarding the U.S. labor market situation. If employment remains robust, the Federal Reserve (Fed) is likely to maintain its aggressive monetary tightening policy.

Seo Sang-young, head of the Media Content Division at Mirae Asset Securities, said, "The impact on the Korean stock market from Apple’s stock decline due to weak iPhone sales after the U.S. market close and Amazon’s after-hours rise will be limited," adding, "The Korean stock market is expected to start about 0.3% higher but will see increased volatility amid continued stock concentration."