Today’s Outlook:

• Global stock indices fell into negative territory on Thursday’s trading (18/7/24) triggered by a sell-off in overvalued Technology stocks spreading to the rest of the market; while the DOLLAR INDEX turned higher after US economic data released above expectations. Investors seem to have fully price-in all the good news, including the expectation that the Federal Reserve will cut interest rates in September and that a recession is likely to be avoided. Anticipation of further comments from Republican presidential candidate Donald Trump on Thursday at the Republican National Convention could add to market jitters, with Trump suspected of increasing tariffs that are not friendly to technology companies, according to Goldman Sachs. The S&P 500 fell 0.8%, and the NASDAQ Composite dropped 0.7%, the Dow Jones Industrial Average plunged 533 points, or 1.3%. This weakness came amid a fresh bout of volatility as the VIX, or the so-called “WallStreet fear index”, surged 10% to its highest level since April.

• However, UBS raised its year-end target for the S&P 500 to 5,900, citing favorable conditions for US equities such as solid earnings growth, disinflation, anticipated Federal Reserve rate cuts (forecasted 2x in 2024 beginning in Sept), and a surge in artificial intelligence (AI) investment. The Swiss investment firm also set a mid-2025 index target of 6,200, reflecting its optimism about the market outlook.

• CURRENCY: The JAPANESE YEN slipped again after hitting a 6-week high, while the EURO weakened after ECB President Christine Lagarde postponed interest rate changes but said that there is a wide open rate cut decision at the next ECB meeting in September. The Dow Jones Industrial Average closed down 533.06 points, or 1.29%, at 40,665.02, snapping a string of consecutive closing highs. The S&P 500 Index fell 43.68 points, or 0.78%, to 5,544.59. THE DOLLAR INDEX rallied after the Philadelphia Fed Manufacturing Index (Jul) data unexpectedly skyrocketed to 13.9, much higher than the 2.7 forecast and the 1.3 figure in the previous month. On the one hand, Initial Jobless Claims did increase by 20k to 243k jobless claims for the latest week, higher than the forecast of 229k compiled by Reuters polled economists; however this data is considered to show little significant slowdown in the labor market due to seasonal factors. As a result the DXY was up 0.5% at 104.19, after being near its weakest level in 4 months. The Euro was down 0.37% at USD 1.0896, down from a 4-month high on Wednesday. From JAPAN, the Yen fell from its highest level after daily data showed little fresh evidence of intervention from authorities. The currency was 0.75% weaker against the greenback at 157.36/USD. The Yen has fallen sharply against the Dollar this year due to the wide interest rate differential between the US and Japan, creating favorable trading opportunities, where traders borrow Yen at low interest rates to invest in Dollar-priced assets for higher returns, known as the carry trade.

• FIXED INCOME: The latest interest rate-sensitive 2-year US TREASURY yield rose 3.4 basis points to 4.463% and the 10-year yield rose 4.4 basis points to 4.19%. The yield curve between the 2-year and 10-year bonds climbed 1 basis point today to minus 27 basis points. This means that investors now see a rate cut by the Fed as a certainty, if Inflation continues to move in the right direction (flattening).

• COMMODITIES: Expectations of a rate cut kept GOLD approaching a record level during the session, although it later fell to USD 2,441.61 per ounce. Of other commodities, OIL rose throughout the day before finally stabilizing. BRENT futures closed higher, up 3 cents at USD 85.11/ barrel, but US WTI slipped 3 cents to USD 82.82/barrel.

• ASIAN MARKETS: Chipmaker stocks in Asia were hit by a sell-off on Thursday after reports that the United States is considering tighter restrictions on exports of advanced chip technology to CHINA. Bloomberg News reported that US President Joe Biden’s administration is considering a policy called the foreign direct product rule, which would allow the US to stop the sale of a product if it is made using American technology. In CHINA itself, investors are likely to be very disappointed with the outcome of the Communist Party Central Committee meeting, known as the plenary session, where they watched for signs of a much-needed stimulus rollout to revive the flagging economy. China’s leaders reiterated their general economic policy objectives: modernizing industry, boosting domestic demand and limiting debt and property sector risks; although the details of how this will work on the ground are unclear. JAPAN inflation will be the main focus of Asian markets today; the figures will largely determine the Bank of Japan’s action at its July 30-31 meeting: decide whether to keep rates on hold, or raise another 10 bps to 0.20%? Economists polled by Reuters expect Core Inflation to increase in June by 2.7% yoy from 2.5% in May. That means Inflation has been above the central bank’s target of 2% for 27 consecutive months. Officials are concerned that this Inflation is driven more by external factors rather than domestic demand which is what policymakers are pushing for. The effects of strong wage increases are yet to be felt, but nearly 90% of Japanese households expect prices to rise within a year from now, which is the highest survey probability in 16 years. With so many volatile factors in Asian markets, it’s no wonder the MSCI World, Asia ex-Japan, and emerging market indices are on track for their biggest weekly declines in 8 weeks, while Japan’s benchmark Nikkei 225 index is expected to see its biggest weekly decline since April.

• JCI: Unexpectedly able to improve its position to above 7300 level again, gained 97pts / +1.34% thanks to the rise in bluechip & large cap stocks, plus supported by significant foreign buying flow of IDR 1.16 trillion (all market). NHKSI RESEARCH thinks this is a positive sentiment that could last until the end of this week, making JCI likely to be able to maintain the Support level of 7280 while preparing for a steady bullish swing through 7375 towards the TARGET point of all time high 7455. However, long positioning with wise money-management should be applied at all times.

Company News
• TAPG: Triputra Agro (TAPG) Receives Subsidiary Dividend of IDR 870 Billion
• ARKO: UNTR Group’s Arkora (ARKO) Targets 150 Megawatt Hydroelectric Projects in Kalimantan
• PTBA: PTBA’s Latest Forecast on the Fate of the Coal Sector this Year

Domestic & Global News
Subsidized Fertilizer Stock Scarce, Farmers Threatened with Harvest Failure at the End of 2024
Maersk Says Red Sea Shipping Disruption Having Global Effects

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