Major US stocks fell by around 1 percent on Tuesday (15/08/23), as an ongoing stumble in China’s economy raised fears about global growth just as Treasury yields after stronger-than-expected consumer spending dented hopes that the Federal Reserve won’t resume rate hikes later this year. Retail sales rose 0.7% last month, well above expectations for 0.4%, marking the biggest increase since January (on an annualized basis, US Retail Sales stood at 3.17% yoy, 2x higher than both the forecast and the previous month); signaling that the US economy remains strong. After the data was released, traders’ expectation that the Federal Reserve will hold interest rates unchanged at the upcoming FOMC Meeting in September, remained at 89% probability; although on the one hand analysts thought investors were worried that the benchmark rate would stay at its current position for a longer time than anticipated. Such thinking also put Bank stocks under selling pressure. The US Treasury yield curve has been inverted for over a year, with long-term bonds yielding less than short-term tenors. This continued situation has the potential to limit the profits that banks can make from lending. The gloomy sentiment in the market was exacerbated by Fitch’s report that it may downgrade more banks, including JPMorgan; if the US banking sector’s condition erodes further. As a result, all major sectors of the S&P500 index fell, with the Energy sector leading the way due to falling crude oil prices. From the Asian continent, Japan reported 2Q23 GDP that surged to 6.0%, a much better performance than the 3.1% estimate and the previous quarter at 3.7%. Unfortunately, China could not keep up as their Industrial Production growth in July dropped to 3.7%; failing to meet expectations and beat the previous month’s performance of 4.4%. Since the beginning of the year, Chinese Industrial Production has been struggling below 4%, at 3.8% to be precise; the worst performance since a year ago. In contrast to the US, China’s retail strength is also increasingly sluggish with growth of only 2.5% yoy in July (vs forecast 4.5%; previous 3.1%); where YTD Chinese Retail Sales (July) contracted to 7.33% from 8.15% in the previous month. No doubt, China’s unemployment rate rebounded to its April high of 5.3%. China’s central bank cut the 1-year medium-term lending facility rate to 2.5% from 2.65%. Although the intention is to boost the economy there, on the one hand this step mak es market participants worry about China’s economic recovery which seems very slow. From continental Europe, the UK reported a massive increase in jobless claims at 29,000, missing the Claimant Count Change (July) estimate of 7,000, and this result was also higher than last month at 16,200. Not surprisingly, the Unemployment Rate (June) was also reported to have increased to 4.2%; the worst condition since November 2021. On one hand, the current UK labor shortage triggered average wage plus bonus growth of 8.2% in June, and put Labour Productivity to positive 0.7%, signaling workers are getting more effective & efficient from the previous position of negative 1.4%. The unfavorable economic outlook for the next 6 months was also illustrated by the German ZEW Current Conditions (August) data which dropped to -71.3 exceeding expectations; while the business situation is seen as still sluggish although the level of pessimism is starting to decrease. This afternoon the UK will report CPI (July) where Inflation is expected to tame to 6.8%, from 7.9% in June. Meanwhile, the Euro Zone will report the 2Q23 GDP rate which is predicted to fall to 0.6% yoy from 1.1% last quarter; as the Euro Zone Industrial Production forecast in June is still weak with negative growth expected to double. Later in the evening, markets will monitor a number of data from the US namely Building Permits, Housing Starts, Industrial Production all for July.

JCI edged higher by almost 5 points to 6915.10 on Tuesday as investors digested the Trade Balance surplus data which narrowed below estimates. Indonesia’s July Trade Balance surplus dropped to USD 1.31 billion, vs. forecast of USD 2.53 billion, as Exports fell more than Imports. Since the beginning of the year, Indonesia has accumulated a Trade Balance surplus of USD 21.23 billion, despite Exports weakening at 10.27% compared to Imports which only fell 6.71%. Considering the sentiment rolling in the market, NHKSI RESEARCH estimates that the bullish aura can still persist although it seems a bit difficult to break the ultimate resistance level around 6950-6970 amid the current market sentiment. At least investors/traders should also monitor the support level of 6890-6880 in case JCI chooses to close down and we have to reduce our portfolio position.

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