Last Week Review

• THE S&P500 AND NASDAQ INDEXS MARKED QUARTERLY GAINS of 3.9% and 8.3% respectively; while the DOW JONES INDUSTRIAL AVERAGE fell 1.7%. According to the US PCE PRICE INDEX, the Fed’s favorite Inflation benchmark data released last Friday, data showed US monthly inflation was unchanged in May, an encouraging development after strong price increases earlier this year cast doubts over the effectiveness of the Fed’s monetary policy. The Commerce Department report also showed that consumer spending increased slightly last month, fueling optimism that the US central bank could engineer a much-desired “soft landing” for the US economy, especially after a number of economic indicators had previously emerged and emphasized the view of a US economic slowdown. For example, the final Q1 US GDP figure of 1.4% did not budge much from previous estimates, down considerably from 3.4% in the previous quarter. Not to mention US Consumer Confidence, Durable Goods Order and a number of housing sector data are also (still) on a downward trend. The market calculated the chance of a rate cut in September rose to 66% after the US PCE PRICE index was released, as reported by LSEG FedWatch.

• Investors expect two rate cuts this year despite the Fed’s projection of only one this year, as inflation cools. The FIRST US PRESIDENTIAL CANDIDATE DEBATE on Thursday between US President Joe Biden and his Republican rival Donald Trump also influenced stock market sentiment and uncertainty factors, citing the incumbent’s shaky performance and Trump’s high electability.

• MARKET DIRECTION: Data from Goldman Sachs shows that hedge funds are aggressively selling Technology stocks at the moment, with net sales in the sector in June being the largest on record. Once Inflation data proves to be under control, analysts anticipate sector rotation from the Technology sector to other laggard sectors this year as long as it is supported by positive corporate earnings data. The Bloomberg survey stated that 52% of respondents believe that S&P500 stocks are currently overpriced. Furthermore, 40% of respondents anticipate a 10% correction in the S&P500 this year, which 55% believe could start next month. JPMorgan predicts a 23% downside risk for the S&P500 to the 4200 level; triggered by doubts about the ability of stocks to maintain their earnings growth rates through the second half of the year.

• COMMODITIES: For the past week, BRENT prices rose 0.02% while US WTI posted a loss of 0.2%. Both world crude oil benchmark prices rose about 6% in June. Underlying sentiment: Global crude oil supply disruptions as geopolitical tensions in the Middle East (Israel vs Lebanon’s Hezbollah which is feared to spill over to Iran, a major oil producer) and Europe (Russia vs Ukraine, where Russia is starting to consider reducing ties with the West as they are perceived to be overly meddling in the Ukraine War); while a surprise increase in US crude oil and gasoline stocks in the summer which should be a good time for the road trip season, prevented the  price of this commodity from going higher as it again indicates weak demand.

This Week’s Ooutlook

Friday’s US employment report will be the highlight of a holiday-shortened week commemorating the 4th of July, as markets seek clarity on when exactly interest rate cuts could begin. Federal Reserve Chairman Jerome Powell’s comments will be closely watched, along with the minutes of the US central bank’s latest meeting on Wednesday. Elections in France and the UK will also keep markets on their toes.

Here are some of the focuses that market investors need to monitor this week:
• US LABOR DATA: Investors will focus their attention on Friday’s NONFARM PAYROLLS report as they look for fresh indications of when the Federal Reserve might start lowering interest rates. Economists expect the US economy to add 189,000 jobs in June, after the previous month’s upside surprise of 272,000, proving the strength of the labor market. Ahead of the Nonfarm Payrolls data, Tuesday’s US JOLTs JOB OPENINGS report is expected to show that job openings declined again in May, suggesting employers have successfully filled positions.

• CENTRAL BANKERS’ COMMENTS & FOMC MEETING MINUTES RELEASE: Fed Chairman Jerome Powell will present at the European Central Bank’s annual forum in Sintra, Portugal on Tuesday. Powell, along with ECB President Christine Lagarde will participate in a panel discussion on “Monetary policy in an era of transition”, where investors are looking for fresh insights on interest rate policy going forward. Meanwhile, the minutes of the Fed’s June meeting will be outlined on Wednesday based on the central bank’s views on the economic outlook and factors affecting the monetary policy outlook.

• ELECTIONS IN FRANCE & UK: France goes to the polls on Sunday, the first round of a snap election that has shocked and rattled markets. A week later, investors will be eagerly awaiting clues to the results of the second round. Meanwhile, polls on Thursday predicted a landslide victory for the Labor Party in the UK, sending the Poundsterling back to levels not seen since the 2016 Brexit vote. Traders saw a return to stability after the intense political turmoil of 14 years of Conservative Party rule and speculated that Labor leader Keir Starmer could re-establish trade relations with Europe.

• EUROZONE INFLATION: The Eurozone will release Inflation (June) data on Tuesday, following Germany’s report on Monday, with economists expecting a slight slowdown in both headline and core inflation after a rise in May. On Thursday, the ECB will publish its June meeting minutes, when it cut interest rates for the first time since September 2019; a step ahead of the Fed’s planned rate cut.

• CHINA PMI: Official data on Sunday showed that manufacturing activity in China declined for a second month in June while services activity slumped to a 5-month low, calling for urgency for stimulus to continue as the world’s second largest economy struggles to gain momentum. The Caixin Manufacturing PMI, due out on Monday, is expected to fall. Analysts expect China to roll out more policy support measures in the short term, while the government’s pledge to increase fiscal stimulus is seen helping to push domestic consumption to higher levels.

• INDONESIA: Will be awaiting INFLATION (June) figures early this week with estimates: weakening to 2.7% YoY, versus 2.84% in the previous month. However Core Inflation (June) is anticipated to heat up slightly to 1.96% YoY, from 1.93% in the previous month. Investors will also start focusing on economic data from the Nikkei Manufacturing PMI (Jun) on Monday, followed by FX Reserves (June) on Friday.

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