[Good Morning Stock Market] KOSPI Expected to Start 0.7% Lower Amid US Economic Slowdown Concerns and Strong Dollar...

Deterioration of Investment Sentiment Amid US Federal Government Shutdown Possibility
"Domestic Stock Market Expected to Start Lower, Then Attract Rebound Buying"

Image source=AP·Yonhap News

The domestic stock market is expected to start lower on the 27th. This is attributed to the impact of the U.S. stock market closing lower amid economic concerns and the strengthening of the dollar.

On the 26th (local time), the Dow Jones Industrial Average closed at 33,618.88, down 388.00 points (1.14%) from the previous session. The S&P 500, which focuses on large-cap stocks, fell 63.91 points (1.47%) to 4,273.53, and the tech-heavy Nasdaq dropped 207.71 points (1.57%) to 13,063.61. The Dow's decline was the largest since March this year, and the S&P 500 fell below the 4,300 level for the first time since June 9.

The market closely watched movements in government bond yields and the dollar, the possibility of a U.S. federal government shutdown, and economic indicators released that day. Long-term bond yields have been rising amid expectations of prolonged high interest rates. In the New York bond market, the 10-year Treasury yield surpassed 4.5%, reaching the highest level since 2007, and continued to rise. The 2-year yield, sensitive to monetary policy, also edged up to around 5.13%. The Dollar Index, which measures the value of the dollar against six major currencies, exceeded the 106.1 level.

Weak economic data further heightened concerns about an economic slowdown. According to the U.S. Department of Commerce, new home sales in August fell 8.7% month-over-month to 675,000 units, below the forecast of 695,000 units. The Conference Board's consumer confidence index for September also came in at 103, below both the previous month's 108.7 and the forecast of 105.5. Particularly concerning to the market is the drop in the expectations index to 73.7, indicating recession-level sentiment.

International oil prices, which fuel inflation concerns, also showed an upward trend. This is due to highlighted supply shortages expected in the fourth quarter despite economic slowdown worries. At the New York Mercantile Exchange, November West Texas Intermediate (WTI) crude oil futures closed at $90.39 per barrel, up 71 cents (0.79%) from the previous session. This is the highest closing price since the 19th.

Shutdown risk is also a negative factor. To prevent a U.S. federal government shutdown, Congress must pass a budget before October 1, when the 2024 fiscal year begins, but negotiations remain deadlocked.

Although the domestic stock market is expected to start lower on the 27th, a rebound buying wave is also anticipated. Seo Sang-young, head of the Media Content Division at Mirae Asset Securities, said, "The expanded decline in the U.S. stock market was largely influenced by the Federal Trade Commission's (FTC) antitrust lawsuit against Amazon, so the widened decline may not fully reflect in the domestic market." However, he added, "The possibility of a U.S. shutdown and weak economic data highlighting recession risks could negatively affect foreign investor sentiment."

He continued, "It is favorable that companies like Micron, expected to report good earnings during the Chuseok holiday period, will announce their results. Additionally, the U.S. August core Personal Consumption Expenditures (PCE) price index is expected to slow from 4.2% year-over-year to 3.9%, and China's services Purchasing Managers' Index (PMI) is also anticipated to improve, which is positive."

Seo said, "Considering these factors, the domestic stock market is expected to start down about 0.7%, followed by a rebound buying wave due to recent declines. However, with the dollar remaining strong and the uncertainty over a U.S. shutdown during the Chuseok holiday, anxiety is expected to persist, limiting any significant rebound."