It's time now for an in-depth look at the global markets this afternoon, and for that I'm joined on the line by Dr. Hwang Sei-woon, Research Fellow at the Korea Capital Market Institute.
Dr. Hwang, thank you for coming on today.
So again, U.S. stocks were down on Tuesday, concerns over Treasuries again. Korean stocks, though, a little higher today.
What's the story here?
In the U.S. stock markets, the Dow Jones Industrial Average fell for the first time in four sessions Tuesday, paring some of the strong gains from the previous session as recession fears lingered. The S&P 500 Index also closed lower as U.S. President Donald Trump showed no urgency to resolve trade friction with China and renewed his call for a big Federal Reserve rate cut. The major indexes fell to their session lows in the final minutes of trading as Treasury yields declined as well.
Stocks in Asia declined(or showed mixed movements) after a weak U.S. session and a further move lower in Treasury yields overnight. Investors assessed the latest news on trade talks and awaited more clues on monetary policy. Japanese equities bore the brunt of losses, with stocks also lower in Hong Kong and South Korea. Japan’s Nikkei dropped 0.61%, while South Korea’s KOSPI and Hong Kong’s Hangseng lost 0.11% and 0.23% respectively.
President Trump dismissing talk of a recession, his administration looking into ways to lower taxes. Does Trump have good reason to downplay recession, and how have the markets responded?
President Donald Trump said on Tuesday his administration was considering temporary tax cuts on wages as well as profits from asset sales as a strategy to boost the economy, even as he maintains the country's economic outlook remains strong. An economic slowdown would be bad news for Trump, who is building his 2020 bid for a second term around the economy’s performance, but whose year-long trade war with China is weighing on growth.
People pay payroll taxes in order to finance Social Security and Medicare. Former President Obama had enacted a temporary payroll tax cut during his presidency in an effort to boost the economy. Cutting those taxes could temporarily help the middle class, but could also increase the fiscal deficit and possibly hurt the social safety net programs they fund. Trump will need to boost up the economy to get more votes for his second term. However, a temporary tax cut is not likely to end up with sizable economic impacts.
Here in Korea, Finance Minister Hong Nam-ki has announced investments into six innovative areas of the economy, including system semiconductors. Around 4.7 trillion won. What's he trying to do here, and what can we expect to come out of this?
The main purposes of the government investment include to boost up the economic growth and reduce technological dependence on Japan. Policy makers are quite concerned on declining growth rate which is partly driven by fast aging population and fewer rising star companies. In addition, after Japan slapped tougher regulations on exports to South Korea of three key materials used in memory chips and display panels in early July, there are much stronger demands for localization in manufacturing. The planned investment in core infrastructure and new industries is meant to help innovative growth spill over into other industrial sectors.
South Korea has been eager to boost the hydrogen economy and other innovative sectors as new growth engines amid slowing exports and investment. If the government investment is coupled with the industrial deregulation, then they will be able to make sizable impacts on economic growth in the long run.
Alright, Dr. Hwang. That's where we'll have to leave it today.
Thank you again for coming on.