[Good Morning Market] KOSPI in Wait-and-See Mode Amid South Korea-US Tariff Negotiation Uncertainty

On July 30, the KOSPI is expected to experience a wait-and-see trend due to uncertainties surrounding tariff negotiations between South Korea and the United States.

On the previous day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 44,632.99, down 204.57 points (0.46%) from the previous session. The S&P 500 Index ended the day at 6,370.86, down 18.91 points (0.30%). The tech-heavy Nasdaq Index also fell by 80.29 points (0.38%) to close at 21,098.29.

The Trump administration is expected to extend the tariff suspension with China by an additional 90 days beyond the original August 12 deadline, following the conclusion of tariff negotiations with the European Union (EU). In addition, U.S. Secretary of Commerce Wilbur Ross stated that "most tariff negotiations with other countries will be concluded before August 1," leading to assessments that the peak of trade-related uncertainty has passed.

However, the market has already priced in much of this optimism. The weakening momentum in major stock markets such as the United States suggests that the impact of tariff negotiations as a market driver is fading. Now, the market's focus is shifting to the July Federal Open Market Committee (FOMC) meeting and the earnings announcements of the 'Magnificent 7 (M7)'?the group of leading U.S. big tech companies.

At the July FOMC meeting, a rate freeze is highly likely. This is because employment indicators, which influence the Federal Reserve's policy rate decisions, have been stronger than expected, and inflation resulting from tariffs has not yet been clearly reflected. In fact, according to CME FedWatch, the probability of a rate freeze in July stands at 95%.

Han Ji-young, a researcher at Kiwoom Securities, analyzed, "Given Chair Powell's cautious stance and the Fed's independence, it is unlikely that the Fed will immediately respond to President Donald Trump's pressure for a rate cut." She added, "Since there is division within the Fed regarding the impact of tariffs, the key issue will be how widely the minority view advocating for a rate cut spreads." This could increase the volatility of the U.S. 10-year Treasury yield, which has recently been fluctuating within a range of 4.3% to 4.4%, and could also affect the stock market.

Just as important as the FOMC meeting is the second-quarter earnings announcements of the M7 companies. The earnings of these companies, including Microsoft (MS) and Meta, are expected to show a much higher profit growth rate than the overall S&P 500. According to FactSet, the second-quarter earnings per share (EPS) growth rate for the S&P 500 is estimated at around 5%, while that of the M7 is projected to be in the 14% range. In particular, the results of MS and Meta are directly linked to the stock price trends of domestic artificial intelligence (AI)-related stocks, such as those in high-bandwidth memory (HBM) and power equipment, and may have a greater impact on the market than the FOMC.

A researcher commented, "Today, the KOSPI is likely to see a wait-and-see trend due to the news of the extension of the U.S.-China tariff suspension, the International Monetary Fund (IMF) raising South Korea's growth forecast for 2026, lingering uncertainties over the South Korea-U.S. tariff negotiations, and caution surrounding the July FOMC and M7 earnings." He added, "Considering that the domestic second-quarter earnings season is also underway, we expect differentiated stock price movements within sectors depending on the individual earnings results of companies such as Hanwha Solutions, Lotte Fine Chemical, and GS Engineering & Construction."