Today’s Outlook:

• World stocks rose amid falling US Treasury yields in Wednesday’s trading (05/06/24) as investors focused ahead of the EUROPEAN CENTRAL BANK (ECB) meeting due later this evening; while weak US labor market data strengthened speculation of a Federal Reserve rate cut in September. MSCI’s world stock index, which tracks shares in 49 countries, jumped 0.9%, supported by gains in Asia, Europe and Wall Street. The S&P 500 Index rallied 1.2% to a record high, the Dow Jones Industrial Average rose 0.3% and the NASDAQ jumped 2%, also to an all-time high. Supporting the NASDAQ, NVIDIA shares also hit a record high, lifting the AI chipmaker’s stock market value to USD 3 trillion as it surpassed APPLE to become the world’s second-largest company. The CENTRAL BANK OF CANADA cut interest rates by 25 basis points for the first time in 4 years, strengthening investors’ hopes that the stock market will soon receive support from interest rate cuts in other countries.
• ECONOMIC INDICATORS: ADP NONFARM EMPLOYMENT CHANGE showed employment in the US private sector increased by 152,000 last May, lower than expected. A day earlier on Tuesday, data showed job openings in the US (JOLTs JOB OPENINGS) fell more than expected in April to the lowest level in over 3 years. With this apparent weakness in the labor sector as the Fed would like to see, the market now expects a 45 basis points easing of the benchmark interest rate this year. Markets estimate a 65% chance of a US rate cut in September, up from 46% in the previous week, according to CME FedWatch. The market seems to be transitioning from the “bad news is good news” phase to a slight fear that the economic slowdown will be more pronounced going forward. This explains why the stock market has been moving sideways over the past few weeks. In line with expectations of a US rate cut, the 10-year US TREASURY YIELD fell to 4.2832%, the lowest in over 2 months. INITIAL JOBLESS CLAIMS weekly jobless claims data will be the market watch today, plus US TRADE BALANCE figures for April as well as their Export-Import growth.
• EUROPEAN & ASIAN MARKETS: The ECB is set to start its meeting later tonight at around 7pm GMT, and markets are expecting the first rate cut opportunity. After that, market participants will monitor what impact the rate cut will have on domestic demand and the overall improvement of the euro area economy. Data showed EUROZONE business activity expanded in May at the fastest rate in a year as expansionary growth in services outpaced a contraction in manufacturing. Yields on 10-year German government bonds, the benchmark for the Eurozone, fell to 2.527%, a day after the steepest two-day decline since March. The Eurozone region started to report PPI (Apr) which continued to drift in deflationary flows: -5.7% on an annualized basis and -1.0% on a monthly basis; both of which are still larger than expected. On the continent, Tokyo’s Nikkei index fell 0.9% on the back of the latest strengthening of the Japanese Yen. Service sector growth in Japan remained in expansionary territory as recorded in the au Jibun Bank Japan Services PMI (May). The same conditions also occurred in CHINA, as they released the Caixin Services PMI was able to creep up to 54 in May, higher than expectations and the previous month’s position at 52.5. Good news came from SOUTH KOREA yesterday morning when economic growth in the first quarter increased to 3.3% yoy from 2.1% in the previous quarter.
• CURRENCY; DOLLAR INDEX, which measures the strength of the US currency against 6 other major world currencies, rose 0.14% to 104.3, just above the 2- month low of 103.99 reached on Tuesday. The Dollar’s recent strength is expected to recede in the next 12 months, according to a Reuters poll of strategists. JAPAN YEN weakened to 156.09/USD, a day after strengthening to a more than 2-week high of 154.55. In Asia, INDIAN markets remained in focus, where the stock market turned around surging more than 3% after key allies pledged their support to form a new government following PM Narendra Modi’s narrow victory. India’s Nifty 50 rose 3.4% in volatile trading after slumping nearly 6% on Tuesday, a day in which foreign investors sold around $1.5 billion worth of shares (equivalent to IDR 24 trillion at IDR 16,000/USD).
• COMMODITIES: OIL prices were at a 4-month low triggered by OPEC+’s decision to increase supply by the end of this year; as well as detected increases in US crude oil and fuel reserve stocks. ROTH MKM commodity analysts argue that they would not be surprised if OPEC+ decides to postpone voluntary cuts and announce this move as soon as early August if oil prices remain in the USD 70s. In the meantime, both oil price benchmarks are seen rebounding, amid a jump in US crude inventories by 1.2 million barrels in the week ended May 31, missing an expected decline of 2.3 million barrels, according to data from the US Energy Information Administration (EIA). BRENT was last quoted at USD 78.46 per barrel, up 1.2%, while US WTI futures traded at USD 74.1/barrel, also up 1.2%. Oil prices have fallen by almost 10% in the five trading sessions to Tuesday. Falling oil prices are unacceptable for major oil producers including Saudi Arabia and Russia as these countries ideally need oil prices well above USD 90/barrel to balance their budgets, while Russia instead needs higher prices to finance its ongoing war in Ukraine.
• From another commodity, UBS has raised its GOLD price forecast, citing strong demand support for the yellow metal. This upward price revision is driven by large official sector gold buying aka from a country’s central bank and consistent physical demand. This structural shift reinforces investors’ bullish view on gold, supported by continued macroeconomic uncertainty and geopolitical risks. The second half of 2024 holds many uncertainty factors, especially in light of the US ELECTIONS that will take place; plus rising concerns over the US fiscal deficit could also be a catalyst for gains later this year. UBS now forecasts an average gold price of USD 2,365 in 2024, up 8% from its previous forecast, with a year-end target of USD 2,600. Over the next 2 years, UBS projects gold prices to surpass USD 2,800, reflecting a strong outlook despite the potential for prices to fall in the long term towards USD 1950, already up 11% from their initial forecast of USD 1750.
• Positive sentiment from regional market is expected to lift JCI from its slump back below the psychological level of 7000, slashed 2% more to 6948 level on Wednesday trading, driven by Foreign Net Sell of IDR 567.63bn (all market). Technically, this expectation is also based on RSI POSITIVE DIVERGENCE which explains buying momentum started picking up when JCI made a new low yesterday. However, if it turns out that selling pressure still dominates then it is not impossible for JCI to continue consolidating to the expected stronger medium term trendline support around 6870. NHKSI RESEARCH advises investors/ traders to remain cautious in positioning despite the limited weakening potential. Upside challenges are quite varied starting from 7055 level, up to 7140 / 7200.

Company News

• BIRD: Founder, Holds 1.9 Million Blue Bird Shares at IDR 1,535-1,565 per Sheet
• DOID: Delta Dunia Acquires American Anthracite Mine for USD122.4 Million
• DSNG: Dharma Satya (DSNG) Agrees to Distribute Dividends of IDR 233.2 Billion

Domestic & Global News
Sugar Price Relaxation Continues, Sugarcane Farmers Still Bite Their Fingers
Japanese Government Investigates Toyota Headquarters Over Safety Test Issues

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