All three major Wall Street indexes closed in negative territory on Tuesday (08/08/23) with the Nasdaq leading the way down 0.79% after credit rating agency Moody’s downgraded 10 small-medium US banks by 1 notch and reviewed 6 giant banks including Bank of New York Mellon, US Bancorp, State Street & Truist Financial for possible rating cuts as well. This has again raised concerns over the health of the US banking sector and the US economy as a whole. Moody’s also warned that the strength of the sector will be tested by credit risk and weak profitability. Market confidence in US banks is gradually returning after the failure of three banks in March, including Silicon Valley Bank, which shook the US & global financial system. The S&P 500 Banks Index has slipped 2.5% this year, compared to the S&P 500’s 17.2% gain, and this downgrading shows the fragility of investor confidence in financial stocks. After a five-month rally pushed the benchmark S&P 500 and Nasdaq Composite to within 5% of their historic highs, August has now recorded five losing sessions out of six. The S&P is down 2% this month, and the Nasdaq has slumped 3.2%. Reaction to the bank downgrades pushed up the CBOE Market Volatility index, Wall Street’s fear gauge, at one point hitting a two-month high. On the other hand, the Energy index was able to overcome early session weakness; caused by disappointing China Trade Balance data, ending up rebounding 0.5% higher alongside a bounce in global crude oil prices after the US government projected a more vibrant economic outlook. China reported a Trade Balance (July) surplus of USD 80.6¬† billion, exceeding expectations and the previous month’s position of around USD 70.6 billion; but recorded a much below-expected decline in Exports & Imports for July. It is known that crude oil Imports into China (which is the world’s second largest importer and consumer of oil) plummeted 18.8% below June’s figure; although already up 17% from the lows of a year ago. Speaking of Trade Balance, the US also released Trade Balance (June) data with a deficit of USD 65.5 billion, more or less in line with expectations and naturally a lower deficit than the previous month as US Exports did not change much while the decline in Imports was larger. Unexpectedly, the American Petroleum Institute, released US crude oil inventories well above expectations by 4 million barrels compared to a sharp decline of 15.4 million barrels last week. From Europe, Germany reported July Inflation figures which came in at the expected 6.2%, finally lower than June’s 6.4%. From the other side of the world, after South Korea and Japan recorded above expected Current Account (June) growth and Japanese household spending in June tripled on a monthly basis, this morning saw Korea’s Unemployment Rate rise to 2.8% in July. Soon market participants will monitor the release of China’s Inflation data for July, which is haunted by a potential deflation of 0.4% on an annualized basis, although on a monthly basis is expected to rise at least 0.1%.

Indonesia also announced its Consumer Confidence Index (July) at 123.5, (the lowest level in 4 months); down from June at 127.1. This index indicates that consumer¬† confidence in Indonesia’s economic conditions in July remained strong, driven by the Current Economic Conditions Index (CCI) and Consumer Expectations Index (CEC) which remained in the optimistic zone (>100) although recorded lower than June. In July 2023, consumer confidence was observed to remain optimistic across all expenditure categories with the highest optimism recorded among respondents with expenditure of more than IDR 5 million. Based on age, consumer confidence in July 2023 was also observed to be optimistic across all age categories of respondents, although the survey showed that the older the respondent, the lower the level of confidence. Considering the sentiments rolling out in the market, NHKSI RESEARCH expects Sideways consolidation to still take place today; where investors/traders should pay attention to where the chosen market breakout direction is before deciding to add buys or even have to reduce portfolio positions.

Download full report HERE.