Last week review:
A BIT OF 2023 FLASHBACK IN THE STOCK MARKET: The stock market recorded an impressive performance in 2023, and closed on a sweet note thanks to a year end rally on the back of interest rate cut expectations next year. For the year, the DJIA, S&P500 and NASDAQ posted double-digit growth, as well as monthly, quarterly and even yearly gains. Small-cap stocks also bounced back in the 4th quarter of the year, with the Russell 2000 index reversing a 7.1% year-to-date loss at the end of October and instead ending the year with a 15.1% annual gain. The S&P 500, Dow and Nasdaq have posted nine consecutive weekly gains; the longest weekly streak for the S&P 500 since January 2004, and the longest streaks for the Dow and Nasdaq since early 2019. Even the S&P 500 is about 1% away from the highest closing record of January 3, 2022. A close above that level (4,796.56) would confirm that the index is entering a bull market when it hits a bearish bottom in October 2022. The year 2023 was also a year of remarkable reversals in financial instruments: bonds first rallied to a peak of 5.02% (US10YT) then tumbled, with stocks starting slow but eventually skyrocketing towards the end of the year. Meanwhile, the US DOLLAR erased the greenback’s strength that occurred in the second half with a landslide that occurred since early November 2023. The Japanese Yen was the currency with the biggest drop as the Bank of Japan was unwilling to budge from its super-loose monetary policy, while Cryptocurrencies managed to rebound from the 2022 sell-off.
2023 was a tumultuous year marked by the U.S. banking crisis in March, an artificial intelligence stocks boom that managed to propel the NASDAQ 44% higher in 2023, dominated by the MAGNIFICENT 7 stocks: Tesla, Amazon.com, Meta, Apple, Alphabet, Nvidia, and Microsoft; oil supply jitters stemming from the Israel-Hamas war and fears that restrictive Fed policy could tilt the U.S. economy into recession. Finally, projections of a rate cut helped spark a remarkable year-end rally, with gains above expectations in December when the Federal Reserve opened the door for a US rate cut in 2024 after a 525 bps rate hike campaign that helped bring US inflation down to 3.1% yoy in November 2023, down 4% on-year from the level in November 2022. Indonesia itself managed to quell inflation at 2.6% in 2023, departing from 5.4% in Nov 2022, and ending at 2.9% yoy in Nov 2023. Last year Bank Indonesia was forced to raise interest rates 25bps to the latest BI7DRR level of 6.0% in order to control Inflation and stabilize Rupiah exchange rate.
This week’s outlook:
Some big questions await for 2024:
STOCK: Will the global stock market continue to rally on optimism over the Fed’s interest rate cut; or will the economic slowdown be deeper than expected and actually obliterate the overall demand for goods & services (aka deep recession occurs)?
US DOLLAR: Will the US currency continue to weaken as the Fed becomes more dovish, or is it able to rebound as the US economy as the world’s strongest economy returns to its throne?
ASIA & EUROPE MARKETS: Will the Bank of Japan’s negative interest rate monetary policy finally meet its end and the Japanese Yen be able to rebound, and how will China’s economic improvement be able to go hand in hand with the hopes of an improving global economy due to projected US interest rate cuts? On the other hand, is the European central bank still on track in its efforts to cool their inflation to the ECB & BOE target of around 2%? As noted, Germany managed to lower its inflation to 3.2% yoy in Nov 2023, down 5.6% in a year from Nov 2022 position at 8.8%. Meanwhile, the UK also managed to trim their fat Inflation at 10.7% in Nov 2022, missing 6.8% on-year to a level of 3.9% yoy in Nov 2023.
COMMODITIES: what will happen in the world’s CURRENT OIL market as the Middle East conflict changes the world’s supply order, as well as how effective is the OPEC+ decision to reduce production amid sluggish demand from the world’s largest oil importer: China?
INDONESIA: will the political year be peaceful (one round / two rounds), and how much political certainty will attract foreigners to invest in Indonesia; as well as how Indonesia will maintain economic growth in 2024 which is still full of challenges and threats of recession?
Download full report HERE.