Last month, the global stock market experienced the shock of Black Monday, confirming how significantly recession fears can impact the market. The very indicator that amplified these recession concerns, the non-farm payroll report, is set to be released again this Friday, September 6th. This employment data is particularly significant as it serves as a gauge of how confidently the U.S. might approach interest rate cuts ahead of the Federal Reserve's FMC meeting, drawing the attention of global investors. So, how will the announcement of the non-farm payroll report on September 6th influence the stock market, and what kind of reactions can we expect from the equity market? In this week's market commentary, I would like to share my views on this topic, so I hope you will stay with us until the end of Leader's Stock Market Now.

Today, I have prepared a time to share my views on how the stock market might react to the upcoming non-farm payroll report scheduled for September 6th. The broadcast will be divided into two main parts. First, I will discuss the significant drop in the stock market that occurred immediately after the non-farm payroll report was released on August 5th last month, exploring the background behind that event. Then, as we are about to receive the non-farm payroll report again after a month, I will explain my expected scenarios for how the stock market might move in response.

To begin with, let's take a look at the non-farm payroll report from August 5th, which triggered the Black Monday stock market crash. I will first review how the data has historically been presented. Now, let me switch to the screen.

I will report on the chart. The chart you are currently looking at is the daily candlestick chart of the Nasdaq. The area I have circled is when the indicator was released. On August 5th, the non-farm payroll data was released, and it showed a significantly lower figure than expected. This indicates that there are not many jobs available, which means the unemployment rate is rising, and employment is not occurring properly. Are we not experiencing an economic recession? I thought the economy would have a soft landing, but it seems more like a hard landing. This caused the stock market to drop. 

Concerns about the economic recession began to escalate before the indicator was announced on August 3rd, leading to a significant decline. This impact also affected our KOSPI index. Now, let’s take a closer look at how the employment indicators turned out. Let's refer to the article for more details.

The New York stock market experienced sell-offs for two consecutive days due to concerns about an economic recession. The day before, the PMI index was released just before the non-farm payroll data. This manufacturing Purchasing Managers' Index indicated growing worries about the economy. The index helps us determine whether the manufacturing sector is performing well or poorly, and the results were worse than expected. Factories are not operating at full capacity, and the manufacturing sector has contracted. Following this, the non-farm employment figures were released. The PMI data had already sparked concerns among investors, igniting anxiety about the market. A labor market that is tightening faster than expected has made investors uneasy. This series of events has fueled worries about a recession for two consecutive days. According to data from the U.S. Department of Labor, the unemployment rate in July was...

The record shows 4.3, which is confirmed to be the highest level since October 2021. Generally, in the United States, there is an informal rule that the unemployment rate should not exceed 4%. However, the rate has now surpassed 4% and continues to rise gradually, reaching a level of 4.3, the highest since October 2021. 

When looking at the non-farm payrolls, it is reported that only about 114,000 new jobs have been created, which is significantly below expectations. Compared to the previous month's figure of 179,000, the cooling of the job market is clearly evident. This deterioration in the job market is linked to concerns about an economic recession and subsequent declines in the stock market, culminating in the crash during the Black Monday incident on August 5th.

So, employment insecurity led to concerns about an economic recession, and investors quickly began to sell off their stocks. This was the background for the crash at that time. There are claims that the phenomenon was related to the unwinding of the carry trade, but ultimately, the trigger was the looming recession. As the market was falling, that atmosphere spread to the carry trade, leading to additional declines. Therefore, the fundamental cause started from there, as you can see. 

Now, there may be concerns that the upcoming September non-farm payroll report could also lead to a market crash. If data indicating that the economy is deteriorating is observed, similar sell-offs could be triggered. However, the majority of investors...

We are somewhat pessimistic about this; in other words, expectations are high that employment indicators may come out positively. Let me explain. First of all, there is an interpretation that the sudden surge in layoffs has caused this phenomenon. Last month, the employment indicators dropped sharply because companies concentrated their layoffs all at once. If you look at related articles, you will see that Intel's stock plummeted by 26% due to the news of 15,000 layoffs. Yes, cutting 15,000 jobs is a significant number. If this figure is treated as a negative factor in the employment indicators, it will lead to a substantial decline. This could cause the non-farm employment indicators to drop sharply all at once. However, if this situation is resolved and passes, then it will be over.

There is an opinion that, since this is an event, the index values may rise again after this point. Therefore, regarding layoffs, there is significant volatility. In months with high layoffs, the indicators may be distorted. Consequently, this view suggests that the layoffs of major U.S. companies are reflected in the results. If last month's deterioration in indicators is taken into account, the upcoming employment indicators could be fine. It might just be a short-term shock, and this time it could be okay. This perspective is dominant. Thus, many people are not overly worried about the employment indicators for September. Additionally, we need to examine the situation regarding immigrants. It is said that when there is a surge in immigrants, distortions in employment indicators occur. The reason for this can be seen in the article, which states that millions of legal or illegal immigrants come to the U.S. each year.

Immigrants are coming, but only about 34% of them dream of the American Dream. They come to America with the hope that if they start a business or engage in some trade, they could become incredibly wealthy. However, the number of people entering the country with such dreams is just a fraction. So, what about the rest? Many believe that this place is better than their home country. Here, there are unemployment benefits and, although the jobs may be low-quality, there are still opportunities to work, which means they can avoid total failure. Thus, they come to the U.S. with the notion that it is, at least, an improvement over their own country. As a result, a significant number of immigrants come with this mindset. However, those immigrants do not actively engage in job-seeking activities. When there is a sudden surge of immigrants, they may be attempting to enter the job market, but if they are unable to secure employment, then...

Many numbers are counted as unemployed, so at such times, the employment indicators can be expressed as significantly deteriorating data. This is considered a reason for the worsening employment indicators in August. If we summarize, we can see that this is a result of the concentration of job-seeking periods among immigrants. Therefore, if last month's indicators worsened, it is likely that the upcoming employment indicators will also reflect a short-term shock. This can be interpreted in this way. Thus, there is a prevailing positive view on this matter. Perhaps for this reason, the stock market has shown a quick recovery, as you can see. Let's take a look at the article together. Shortly after the Black Monday shock, the retail sales indicators for July were released. The retail sales indicators showed an increase.

Retail sales, let's talk about it in a way that's easy to understand. For example, going to the supermarket and doing some shopping is considered retail sales. If the economy is not doing well, people will have tighter wallets and will spend less. However, if finances are sufficient, people will tend to buy a variety of items at the supermarket, leading to increased consumer activity. This will cause retail sales figures to rise. From the supermarket's perspective, selling more goods is a good thing. Do you understand? It seems that the situation is not quite the same. After 18 months, it has finally moved out of the 0% range, alleviating concerns about an economic recession. This explanation helped to pull the plummeting stock market back up. The Nasdaq chart has risen significantly, and the KOSPI chart has also shown an increase, confirming that it has approached around 2,680 points recently. Therefore, the shock of the economic recession has been addressed.

The stock chart is showing a pattern where it comes and goes, disappearing after a few days, which feels a bit awkward. However, this is the basic interpretation of the mainstream media. The reason for a positive view on the non-farm employment figures for September is as follows: In August, the stock market experienced a shock due to worsening employment indicators. The significant drop in employment figures might have been temporary, possibly due to a surge in layoffs and an influx of immigrants. If we consider this, then the employment figures for September are likely to improve. If August's decline was temporary, we should expect some rebound in September, right? This means that as the employment figures improve in September, we may not see any significant turmoil in the market. Therefore, we are focusing on the employment indicators.

There’s no need to be anxious about the schedule, and I would like to share my perspective on this. To start with the conclusion, I believe that when employment indicators improve, it might actually lead to another shock in the stock market. I will explain why I think this in the second part of the discussion. Now, let's move on to the real highlight of today’s broadcast. In the second part, I will discuss the expected scenario for the stock market on September 6th. As I mentioned earlier, I believe that even if the employment indicators are favorable, the possibility of a stock market crash still exists. Let’s take a look at the next screen to understand why. Those who have watched my previous market analysis broadcasts will have heard a lot about the paradox of recession.

If we follow the logic established by the media, a strange logic is born. To put it simply, as concerns about economic recession increase, so do expectations for interest rate cuts. The economy is not doing well, and we need to overcome this situation. The reason the economy has worsened is that interest rates are too high. Therefore, if we lower interest rates, the economy can recover. So, when the economy deteriorates to the point of recession, we can lower interest rates. As the economy worsens, we can lower interest rates, which means that concerns about recession are negative, while expectations for interest rate cuts are positive. However, this is happening simultaneously in the same situation. To summarize, we can look at it this way: if employment indicators deteriorate, then concerns about economic recession...

Employment will be affected. People are getting laid off, job searching is difficult, and hiring is not happening in this era. There are concerns about an economic recession, and the economy is not doing well. Naturally, if companies are not doing business well, their performance will deteriorate, and their fundamentals will collapse. This can lead to a drop in stock prices. However, if the situation worsens, the narrative changes. As employment indicators worsen, there is a possibility to stimulate the economy by lowering interest rates. Until now, the reason for the poor economy has been high interest rates, but with the indicators worsening, it seems interest rates will be lowered. This will lead to increased liquidity in the market, and the economy that has collapsed will be revived, which could result in a rise in the stock market. This is the expectation that can arise when employment indicators worsen. Therefore, when employment indicators decline, there is both a sense of concern and a sense of hope.

So, as concerns arise and expectations also develop, there are mixed feelings. After the market closes, when you read the closing articles, you often see many people who are very angry. I tend to follow a lot of information coming from foreign media, and there are investors expressing their frustration, saying things like, What a mess is this? They often describe this paradoxical situation as being akin to a Ponzi scheme. 

Now, let's take a look at the employment indicators. If the data comes out, we might think, Wow, the economy seemed really bad, but it’s actually better than expected. This can lead to an expectation of economic improvement, which might trigger a rise in the stock market. That makes sense, right? However, if we analyze the same situation from the perspective of interest rates...

If the employment indicators improve, the situation changes. This means the economy is doing well. However, we need to consider whether it is appropriate to lower interest rates. What I mean is that one key factor to check in the improvement of employment indicators is wages. The fact that employment indicators have improved indicates that the treatment of workers is getting better, which can also be interpreted as wages are rising. Furthermore, rising wages imply that inflation is occurring. Therefore, while employment indicators may have improved, if this is interpreted as inflation concerns due to rising wages, it could mean that inflation is too high, making it difficult for us to lower interest rates. For nearly two years, we have been focused on controlling prices.

We have lived with high interest rates for a long time, and if we hastily lower the rates, there is a risk that inflation, which we have managed to control, may rise again. If that happens, we will end up in a situation where the past two years have been in vain. Therefore, interest rate cuts must be approached with caution. This reasoning can lead to a reluctance to aggressively cut rates, which in turn can become a factor for a decline in the stock market. 

Interestingly, even if indicators show improvement, if the market moves in a way that seems upward, it could ultimately lead to a downturn. This paradoxical situation suggests that, when viewed comprehensively, we can arrive at certain conclusions. Regardless of what indicators are released or what figures are presented, the stock market's movement depends on how these are interpreted, which can lead to fluctuations in various directions. This is the narrative being shaped by mainstream media.

기본적인 시황의 메커니즘 때문입니다. 그래서 저는 9월 6일에 있을 고용 지표 발표에 따른 예상 시나리오를 이렇게 짜봤어요. 굉장히 독특한 견해라고 볼지 모르겠지만, 이 역시 가능하다고 저는 생각합니다. 8월에는 고용 지표 악화로 인해 경기 침체에 의한 쇼크로 증시가 떨어지는 모습이 있었죠. 지표가 안 좋아서 경제가 안 좋은 것 같고, 경제 펀더멘탈이 무너지고 있다고 하면서 우리는 하드 랜딩하는 거 아니냐고 하면서 증시가 하락했어요. 이게 8월 달이라면, 이번에는 거꾸로 해석을 해버리는 거죠. 금리 쪽으로, 만약 9월에 고용 지표가 개선이 되면, 개선이 됐는데 이것이 금리 인하가 추가적으로 진행되지 못할 것 같다. 그러니까 25bp 금리 인하만 가능할 것 같고, 추가 금리 인하에 대해서 우리가 컷이라고 이야기하죠. 컷에 대해서는

It seems that there will not be another rate cut this year. The reason is that if we lower the interest rates and then inflation rises, it would not be ideal. If you look at the employment indicators now, aren't they decent? In this situation, if we drastically cut rates and then inflation rises due to wage increases, who will take responsibility for that? This kind of logic could lead to employment indicators improving, which might trigger concerns about halting interest rate cuts. Additionally, if this leads to a shock that causes the stock market to decline, it would create a very awkward situation. In August, the employment indicators worsened, causing a drop, but in September, if the employment indicators improve and still lead to a decline, it could result in a rather ridiculous situation. Therefore, regardless of what value comes out, it could induce the same stock market reaction. I hold this perspective based on past history.

That’s why. In the past, this situation was the same. Since the beginning of 2023 until recently, there has been a rebound in the market. There were expectations for interest rate cuts as well. You probably remember well that there have been news articles and reports expressing concerns about the economy. This isn’t something that just appeared once or twice; it has been ongoing since late 2022. The concerns about an economic recession have been present. However, during that time, the stock market has risen. Why did it rise? It’s precisely because of this. There are expectations for a soft landing. The current economic situation we are experiencing is like a plane landing; it may shake a bit as it descends. It’s not coming down very steadily. So, for the economy to land, there will be some noise, and there are concerns about a recession.

This is not a situation where an airplane is crashing because it is twisted; rather, it is perceived that it is acceptable for prices to fall and for there to be a recession during that time. The stock market reacted positively, so it’s always good news. Yes, when prices fall, it means interest rates can be lowered. This suggests that the era of high interest rates is coming to an end, so it’s good news. However, what did I say is the reason for the price drop? From my perspective on the market situation, I explained that it is due to decreased demand. People are not buying goods; they go to the store, but because their financial situation is not good, they are not consuming much. As a result, many promotional events take place in the store. They sell products at significantly reduced prices, like big sales. Consequently, the decline in prices leads to the conclusion that it is a result of an economic recession.

A decrease in prices cannot be considered a good thing, as it is a sign of an economic recession. Therefore, if we think about it this way, we cannot view falling prices as good news. Moreover, this decline in prices has also led to an economic downturn. However, some argue that an economic downturn can be seen as good news because the more the economy slows down, the more interest rates can be lowered. This logic was at play during the recent soft landing period. But if the future we face is interpreted not as a soft landing but rather as a hard landing, then the narrative changes. While we might expect a smooth landing, if the turbulence intensifies, it could lead us to wonder whether the airplane is landing or if it is actually in a state of free fall.

It could happen that if that happens, the good news disappears. The news about concerns over an economic recession literally becomes bad news, and news about the economy improving can also be seen as bad news. Why? Because if the economy is improving, meaning employment indicators are getting better, such indicators could be factors preventing interest rate cuts. If the news about improving indicators turns the direction toward concerns about a pause in interest rate cuts, then that too can be interpreted as bad news. Good news can also be bad news, and bad news can become worse news. This is a situation that can occur when heading toward a hard landing scenario. In the past, any news that came out was interpreted as good news in the context of a soft landing. Do you understand? On September 6th, with the improvement in employment indicators...

I believe you can fully understand the perspective from which my scenario about the stock market potentially falling arises. Additionally, I would like to present a chart that can further support my expected scenario, specifically the spread between the U.S. 10-year and 2-year Treasury yields. I have shown this several times in previous market commentary. We have discussed the fact that the yield curve is inverted and that this situation has been ongoing for two years. 

The chart illustrates the difference in yields, with the horizontal line representing the zero point. If it falls below this line, it indicates a negative value, while if it is above, it indicates a positive value. Previously, it consistently maintained a positive value, which is normal, as long-term yields should be higher than short-term yields.

The current state is a normal state. The reason is that long-term bonds have a longer time to repay the money borrowed. Bonds are essentially a form of debt. The borrower needs to repay this debt, but the question is when they will repay it—will it be quickly or later? Long-term bonds involve later repayment, while short-term bonds involve quick repayment. Do you understand? From the creditor's perspective, late repayment is riskier. Who is riskier: the person who promises to pay back tomorrow or the one who says they will pay back in a year? The person who promises to pay in a year is riskier because I have to wait a whole year without getting my money back. Therefore, long-term bond interest rates should be higher, which is why long-term bond rates are higher than short-term bond rates.

It's normal for the long-term bond yields to be lower than short-term bond yields. Therefore, when you subtract the 10-year yield from the 2-year yield, it is normal for the difference to be positive. However, if it turns negative, that indicates an inversion, meaning short-term bond yields are higher than long-term bond yields. This situation suggests that the current circumstances are perceived as more unstable, which is when such inversion phenomena occur. This was discussed extensively in the previous market outlook broadcasts. When the long-term and short-term yields are inverted, there is a perception of signs of economic recession. Historical patterns show that whenever there has been an inversion of long-term and short-term yields, an economic downturn has followed. To my knowledge, there have been no exceptions to this. So now, the long-term and short-term yields have inverted. When did this happen?

It happened around June or July 2022. So, from this point, the candles gradually move down below the black line. At this time, it recorded a negative closing price. For reference, this is a monthly chart. If we count from this point to the present, quite a bit of time has passed; it is now the 26th month. The inversion of long-term and short-term interest rates has persisted for 26 months, recording negative values. However, if you look closely, it has almost all risen back up to -1.13%. If this gets updated, the negative gap could potentially turn positive. By the time you watch this video, it might have already turned positive. So, the inversion of long-term and short-term interest rates is trying to return to a balanced state, back to its original normal state. This could indicate a recession.

With concerns about the economy, the short-term and long-term interest rates have inverted. If this situation is resolved, one might think that the recession will also be alleviated. However, the shocks from an economic downturn have typically occurred at the point when this inversion is resolved. Looking at past cases, this has always been the pattern. It's not that problems arise while the rates are inverted; rather, issues tend to emerge during the process of reverting back to positive rates. This has been the trend in the past. Currently, we are in the process of adjusting. I mentioned this several times in previous discussions about the market situation. Based on this, I am presenting a scenario regarding September 6th. If an event occurs that can resolve the inversion of short-term and long-term interest rates, it will shift back to positive. If something troublesome arises during this adjustment, then...

The FMC schedule, which can shock the stock market, or the announcement of non-farm employment indicators, can also affect this. Now, why is that? Let's look at the next screen. This screen is prepared to help you understand the elasticity of bond interest rate changes. First, let's assume there are short-term bonds. When the interest rates change, we will demonstrate how they respond elastically, that is, how much they react. In the case of short-term bonds, they tend to reflect changes in the benchmark interest rate immediately. On the other hand, long-term bonds are influenced by changes in the benchmark interest rate but also incorporate a premium based on future expectations. This is because the interest rate for short-term bonds is reflected immediately when it changes, which is easy to understand. However, for long-term bonds...

This is money to repay long-term debts. So, even if the interest rates change now, since it is a long-term loan that does not need to be repaid immediately, we assume how the interest will be when the date of repayment arrives in the future. This is referred to as the premium for future expectations. If you understand this up to this point, let’s move on to the screen. Currently, the interest rates for 2-year bonds and 10-year bonds are being compiled. They are almost aligned. As you saw earlier, the spread difference has almost narrowed down to nearly zero. So, approximately, the 2-year bond is at 3.93, and the 10-year bond is at 3.91. Normally, the 10-year bond should be more expensive and have a higher rate, while the 2-year bond should have a lower rate. However, there is an inversion happening.

Since it is set up this way, short-term rates are slightly higher. Now, if non-farm employment figures are released or if the September FOMC meeting takes place and expectations for interest rate cuts decrease, meaning that if the employment figures show improvement, then as I mentioned earlier, it would delay expectations for interest rate cuts. This is interpreted as the economy being okay. Therefore, confidence is low regarding interest rate cuts. If that happens, the term rates, since the base rate has been lowered, can quickly drop for the short term. However, the situation is different for the long term because a premium must be applied for future expectations. If it is reflected that interest rates may not decrease further in the future, then it...

It may not go down much. Let me organize this again. If data shows that employment indicators have improved, then wages may rise again. If inflation concerns come into play again, I thought there could be a future where interest rates would be significantly lowered. However, seeing that prices are being stimulated again due to wages, one might think that interest rates would have to be raised again later on. If this line of thinking applies, then the expected returns for the long term, or the expected interest rates for the future, will rise. Therefore, even if an event to lower the base interest rate occurs in September, long-term bond rates may only decrease slightly. If short-term bonds, which were at 3.93, drop significantly, while long-term bonds, which were at 3.91, only decrease a little, then what will happen?

As the cross occurs, long-term bond yields may rise while short-term bond yields fall, potentially leading to a spread that shifts from negative to positive. This change could be driven by events that lower expectations for interest rate cuts. One such event could be the release of the non-farm payroll data, which might be applicable during the September FOMC meeting. While it may be presented to people as a slim chance, I believe it could be a fairly likely event. If that happens, the inversion of long-term and short-term interest rates would be resolved. Long-term bonds would record a slight decline, while short-term bonds could experience a significant drop. As the inversion transitions to a positive spread, historical patterns show that concerns about a recession could come into play, creating a shock.

There has been a history of shocks in the past, and if this pattern repeats itself, the point at which the inversion of short-term and long-term interest rates resolves could indeed bring about another shock. If the schedule aligns in this way, as we move past September and the indicators show improvement, this could lead to a conclusion that adjusts the short-term and long-term spread positively. Therefore, the news of improved economic indicators could actually serve as a driving force that induces a shock. I’d like to clarify this part as it may be a bit confusing. The point at which the inversion of short-term and long-term interest rates resolves has historically always been associated with some form of recession or shock. If this occurs again, the moment of resolution could actually be a bit...

It can be anxiety-inducing, but at this point, we have the employment indicators being announced in September, and it could be confirmed through the FMC schedule. Once interest rates have been lowered, inflation rises again. So, what do we do? It's a big problem. It seems difficult to further lower the base interest rate. When this happens, short-term bond rates will drop significantly, but long-term bond rates will only drop moderately, which means the spread will turn positive. Therefore, if we are to reach this conclusion, we need an event that will undermine confidence in interest rate cuts. If the improvement in employment indicators acts as an event that diminishes confidence in rate cuts, then the inversion between short-term and long-term interest rates could be resolved, potentially leading to a shock event. This is related to the issue of resolving the inversion of interest rates.

So, paradoxically, even though employment indicators are said to have improved, there is an irony that a recession shock could occur. If you look at the current market, it seems to be a situation where common sense doesn't apply. From my perspective, I thought about it in an unconventional way, and I was able to draw this conclusion. I don't know how you will accept this, but I believe that the current imbalance will eventually be resolved. If the resolution happens to be now, it could lead to a significant impact on the stock market based on this leap in logic. That's what I wanted to share with you. Now, from the point you are watching this video, there will soon be an employment report released, and we will be able to check how the stock market reacts to it. After we confirm that, I will greet you again in another video.

I will provide you with a scenario, and I will check whether the situation can progress as I presented it. Additionally, the FMC schedule will take place during our Chuseok holiday. This is expected to be a very important schedule, but unfortunately, our market will be closed during this time. Therefore, the September FMC schedule could also be an event that triggers significant volatility. It might be helpful to consider such scenarios while preparing for the September FMC schedule.

So, I have conveyed all the market outlook content I prepared up to this point. Next week, I will greet you with a new topic, so please keep your subscriptions, likes, and notifications active. I hope you will join us next week for Leader Stock's Stock Market. Thank you.

9월 고용지표는 또 다시 급락장을 유발할 것인가?

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