Today’s Outlook:

• US Treasury yields retreated modestly, while the S&P 500 ended marginally higher in Tuesday’s trading after data showed US PPI tamed below estimates in December, but investors remained cautious ahead of this Wednesday’s closely monitored US CPI data and the start of 4th quarter earnings reports. The S&P 500 moved choppy throughout the session before ending 0.1% higher. The DJIA also closed up 0.52%, while the Nasdaq slipped 0.23% lower. The MSCI global stock index gained 0.31%, to 834.41. The STOXX 600 European Index edged down 0.08%.

• MARKET SENTIMENT : US producer-level inflation rose 0.2% mom in December, below expectations of a 0.3% rise and down from 0.4% in November. The PPI report is unlikely to change the view that the Federal Reserve will not cut interest rates again before the second half of the year, as Investing.com’s Fed Rate Monitor Tool still shows a 97.8% probability that the Fed Funds Rate will be held at 4.25%-4.50% at the upcoming Jan 28-29 FOMC Meeting. Wildfires in the Los Angeles area are likely to put minor pressure on the US national economy in the near term, but will not derail its strong forward momentum, economists there predict.

• – US CPI data is expected to show inflation on a monthly basis holding at 0.3% in December while the annual figure heated up to 2.9%, from 2.7% in November. Investors are also gearing up for corporate earnings reports – Q4/2024, where results from some of the largest US banks will be released starting Wednesday. These lenders are expected to report stronger profits, driven by strong transactions and trading. It is understandable if investment managers take a wait & see attitude before they see a series of corporate results before maneuvering further in the market.

• – Potential tariffs that could increase inflation after President-elect Donald Trump officially takes office on January 20 also cast a shadow over the market. Bloomberg reported that Trump’s ministers are considering various ideas including raising tariffs (gradually) by 2% to 5% per month to increase US leverage and to try to avoid a spike in inflation.

• FIXED INCOME & CURRENCIES: The benchmark 10-year US TREASURY YIELD eased, but remains near its highest level in 14 months. Yields last pulled back slightly at 4.788% after reaching 4.805% overnight, the highest level since November 2023. Higher yields have weighed on equities by making bonds relatively more attractive, while increasing borrowing costs for companies.

• – The US DOLLAR weakened against the Euro but remained near its highest level in over 2 years. The DOLLAR INDEX, which measures the greenback’s strength against a basket of currencies including the Yen and Euro, fell 0.21% to 109.19, with the Euro down 0.03% at $1.0304.

• COMMODITIES: OIL prices fell after a US government agency forecast US oil demand to stabilize by 2025 while the agency raised its supply forecast. US WTI (New York-based) crude fell $1.32 to $77.50 per barrel; while BRENT (London-based) fell $1.09 to $79.92.

• ASIAN MARKETS: Most Asian markets rallied on Tuesday, with the MSCI Asia ex-Japan index bouncing from a five-month low and CHINA’s leading shares jumping more than 2.5%, after regulators there promised more support for the market and local chip companies rallied after the US increased its technology restrictions. In contrast, JAPAN stocks moved in the opposite direction after Bank of Japan Deputy Governor Ryozo Himino signaled an interest rate hike next week. The Nikkei 225 index recorded its biggest drop in 2.5 months, plunging 1.8%. Japanese manufacturers’ sentiment recovered in January after last month’s decline thanks to a more conducive climate for materials industries, but their outlook remained flat due to uncertainty over Trump’s policies, according to a Reuters Tankan poll.

• – The threat of a global trade war and US tariff sanctions on many countries – especially China – continues to haunt market sentiment as US president-elect Donald Trump’s inauguration approaches on January 20. While meeting with European Council President Antonio Costa on Tuesday, Chinese President Xi Jinping said China and the European Union have a strong “symbiotic” economic relationship and Beijing hopes the bloc can become a “trustworthy cooperative partner”. Meanwhile, Trump said on Tuesday that he would create a new department called External Revenue Services that works to collect tariffs, duties and all revenue from foreign sources.

• – The SOUTH KOREAN won is one of the best-performing Asian currencies this year, but was vulnerable to a fall on Wednesday after Yonhap reported that authorities investigating (impeached) President Yoon Suk Yeol were at his official residence to execute an arrest warrant. South Korea’s unemployment rate jumped to a 3.5-year high in December, as economic uncertainty increased and sentiment weakened amid political turmoil. The unemployment rate rose in December to 3.7% on a seasonally adjusted basis, the highest since June 2021 and up sharply from 2.7% in November, as reported by Statistics Korea. The number of employed people fell by 52,000 over the 12 months to December, after rising by 123,000 in November. This was the first decline since February 2021.

• EUROPEAN MARKETS: Inflation report will also appear in the UK where their CPI (Dec) is forecasted to be flat at 2.6% yoy, still the same as Nov position; although on a monthly basis it may heat up 0.3% higher from the previous month’s 0.1% position.

• INDONESIA: The decision of Bank Indonesia’s Board of Governors Meeting (RDG BI) will color today’s market atmosphere. In the face of recent volatility in the Rupiah which has yet to budge from its 5-month low of IDR 16,288/USD, BI is widely expected to maintain its key interest rate at 6.00%. With inflation at the lower bound of the central bank’s target range of 1.5%-3.5%, monetary policy is geared towards stabilizing the Rupiah, which is down about 7% versus the Dollar from its peak in September. Like most emerging economies, Indonesia has been hit hard by surging US bond yields and the US Dollar, tightening financial conditions that limit BI’s ability to ease policy. According to Goldman Sachs, Indonesia’s financial conditions have deteriorated sharply since late September, mainly due to rising long-term interest rates and falling equities. The conditions are now the tightest since October 2023, and close to the tightest since October 2022. MSCI Indonesia, or EIDO as we know it, slumped 1.21% to 18.0 which is a 52-week low.

• JCI fell below the psychological support level of 7000, losing 60.2pts / -0.86% to 6956.7 on the back of ongoing foreign Net Sell of IDR 633.2bn this time (all market). YTD, foreigners are still consistently selling their Indonesian equity portfolio to the tune of IDR 3.32 trillion (all market). While NHKSI RESEARCH feels that the current JCI position is quite tempting for bottom fishing, investors/traders need to be aware of the substantial uncertainty factor on the US side and its Inflation rate which will shape the global monetary policy picture going forward. Therefore, a WAIT & SEE attitude is still more advisable.

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