Today’s Outlook:

• The S&P 500 and NASDAQ indexes closed in negative territory in Tuesday’s trading, weighed down by weaker chip stocks and megacaps ahead of Q2 earnings reports from major Tech companies this week, as the Federal Reserve kicks off its two-day meeting and monitors US labor data that starts coming out one after another; while the Dow Jones Industrial Average managed to post modest gains. The S&P 500 Index fell 0.5%, and the NASDAQ Composite slumped 1.3%, while the DJIA gained 205 points, or 0.5%. Microsoft, seen by many as a leader in the artificial intelligence (AI) race, fell 5% after the closing bell, after reporting results that fell short of  expectations for quarterly growth in its Azure cloud computing service. Chipmaker Nvidia, considered a major beneficciary of potential AI growth and the second-best stock performer this year on the S&P 500, slumped 7%, dragging down shares of other chipmakers as the Philadelphia semiconductor index dropped 3.88%. Other megacaps such as Apple, Amazon.com, and Meta Platforms are all scheduled to report earnings this week. Investors are now starting to see that the AI sector stocks that have enjoyed such a high rally are at high valuations and are questioning the potential capital gains going forward. Let’s also not forget that last week the megacaps fell ficrst on disappointing results from Tesla and Alphabet, which triggered a sell-off in the market. The Russell 2000 small cap index gained 0.35% and the S&P 500 Value index gained 0.52%, driven by the Financial sector, which jumped 1.19% and outperformed the market in general. This supported the recent sector rotation, which moved away from more expensive stocks as the market has increasingly seen solid expectations of the Federal Reserve cutting interest rates this year thanks to signs that inflation has flattened. As such, the Energy sector which also rose 1.54% and the Financials sector were the best performers out of the 11 major S&P 500 sectors; while Technology fell 2.2%, being the weakest sector.

• ECONOMIC INDICATORS: On Tuesday, JOLTS JOB OPENINGS kicked off this week’s US labor data series, unexpectedly showing there were 8.18 million job openings created in the US in June, down from 8.23 million in May, although still above economists’ forecasts of 8 million. Signs of continued labor demand underpinned Consumer Conficdence in July, which rose to 100.3 from 97.8 in the previous month. Today will see the ADP Nonfarm Employment Change which forecasts 147k private sector job additions in July, as well as the all-important Chicago PMI (Jul) and Pending Home Sales (Jun) ficgures which are expected to bounce back to 1.4% mom from the 2.1% contraction in the previous month. So far, the market is betting that it is unlikely that the Fed will change monetary policy at the end of Wednesday’s policy meeting, but has fully priced in a 25bps rate cut at the September FOMC MEETING, with a slim chance of a 50 bps cut, and has priced in a total of 66 bps of Fed Fund Rate cuts by the end of this year.

• ASIA & EUROPE MARKETS: Foreign Direct Investment (FDI) in CHINA plunged further in June, this time contracting 29.1%, up from -28.2% in the previous month, showing how foreign investors do not see China’s current condition as a fertile ground for their investments. Further today investors will monitor China’s Manufacturing PMI ficgures in July which are likely to remain in contractionary territory, while the market also expects China to keep their Services activity staying in expansionary territory. SOUTH KOREA & JAPAN have started their Industrial Production (Jun) data this morning where both managed to post better than expected results, which is likely to be a positive sentiment for Asian markets today. BANK OF JAPAN is not expected to change its interest rate policy where the rate is currently at 0.1%.

• Fresh worries emerged in GERMANY, when they released the preliminary Inflation estimate (Jul) which turned out to be up 0.1% to 2.3% you, but 2Q GDP still stayed in recessionary territory with negative economic growth of 0.1% yoy. On the other hand, EUROZONE as a whole managed to book 2nd quarter economic growth which is expected to rise 0.6% yoy in line with expectations, but awaiting further review as this is still a preliminary estimate. German unemployment and Eurozone Inflation data will follow later this afternoon, sure to serve as sentiment moving European markets.

• COMMODITIES: GOLD futures prices rose 1% as traders looked to the precious metal as a safe-haven asset after Israel launched a targeted counterattack on Beirut, sparking fears of an escalation of the Israel-Lebanon war. Speaking of this MIDDLE EAST CONFLICT, that sentiment has helped shape OIL prices recently, offsetting sluggish demand from China; while OPEC+ seems to be sticking to plans to increase supply. In the meantime, BRENT and US WTI prices are both down around 1.4% which is the lowest closing price for both crude oil benchmarks since June 5 and puts them in technically oversold territory for a second day. US crude futures for diesel and gasoline also closed at their lowest levels since early June. Traders should take note of the combined sentiment between: manufacturing activity in China which is expected to shrink for the third month in July, Israeli airstrikes (retaliation) on Beirut targeting a senior Hezbollah commander, OPEC+ key ministers meeting, plus the release of US weekly crude stockpiles later tonight, as well as the imposition of the latest US economic sanctions on Venezuela related to the Latin country’s presidential election; will certainly shape sentiment regarding Crude Oil prices going forward.

• JCI ficnally broke MA10 & MA20 Support for the second time in the past week, moreover accompanied by foreign sell-off of IDR 883.77 billion (all markets) shows the threat of more fragile Support 7200 to survive in the near future. NHKSI RESEARCH advises investors/traders to prepare themselves for a potential further consolidation towards 7115/7000. A more disciplined setting of Trailing Stop is believed to be able to secure the overall trading capital.

Company News
• CUAN: A 172 Percent Increase, Prajogo’s Issuer (CUAN) in June 2024 Recorded a Profict of USD30 Million
• MYOR: Mayora Achieves IDR 16.2T Sales in the Second Quarter
• KIJA: Optimistic to Reach Target, Jababeka is Ready to Repay USD180 Million Bonds

Domestic & Global News
Jokowi Approves Excise Taxes on Processed Foods
Economy Slows, Chinese Government Promises to Release New Policies

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