Last week review:
Starting the first week of the second half of 2023, Indonesia released Inflation (June) data which successfully slid to 3.52% yoy, lower than consensus & 4% in May. Even Core Inflation was also reduced back to 2.58% yoy, also lower than forecast & previous month at 2.66%, safely below the 3% ideal limit set by Bank Indonesia (BI). South Korea also announced their June Inflation data which could also fall to 2.7% yoy, from May’s last position at 3.3%. At the end of the week, Indonesia reported that its Foreign Exchange Reserves (June) remained high at USD 137.5 billion, although lower than the end of May at USD 139.3 billion, due to government external debt repayments. The IDR exchange rate closed at IDR 15151/USD; the JCI immediately enjoyed the historical July phenomenon known for high bull market volatility by posting a weekly gain of almost 1% on the back of Foreign Net Buy (all markets) of IDR 593.83 billion; bringing the total amount of foreign buying in the Indonesian stock market to IDR 16.82trillion YTD.
From the US, in a rather short trading week due to the 4th of July Independence Day holiday, it was full of important economic data that determined their central bank’s view on future monetary policy. On Thursday, there was a surprise from the ADP Nonfarm Employment Change (June) data which recorded 497k new hires in the private sector, much higher than the forecast of 228k and clearly above the previous month’s 267k. This is quite worrying for investors as it shows the labor market is still tight and could make the Fed further maintain its hawkish tone, although weekly Initial Jobless Claims increased to 249k new jobless claims, compared to the previous month of 236k. The data also supported an increasingly expansionary US Services PMI (June). The last hope was in the Nonfarm Payrolls (June) report published today, which finally gave some relief to market participants as it turned out to be lower than expected at 209k (vs forecast 225k & previous period 306k), this is the slowest growth in 2.5 years; although the average increase in hourly wages (weekly) remained at 4.4%, unchanged from the previous month. On the other hand, the Unemployment Rate (June) fell to 3.6%, from 3.7% previously.
Speaking of PMI, the European continent also reported their Manufacturing PMI data which on average is still struggling in the contraction zone, at least France and the UK have started to show a little growth even though it is still below the benchmark level of 50. Meanwhile, Japan & China are trying their best to keep their Services PMI (June) in the expansionary area even though it seems to start slipping compared to the previous month. It is clear that the symptoms of soft landing have occurred almost evenly around the world.
This week’s outlook:
This week, the global spotlight will be on a series of Inflation (June) reports starting today from China, where the consensus is not expecting much growth over the previous month at 0.2% yoy; even PPI (June) is also forecasted to weaken further to -5% yoy (from -4/6% in May). The next day, followed by German CPI which is predicted to heat up again to 6.4% yoy (from 6.1% in May). Germany will also release the German ZEW Current Conditions & Economic Sentiment (July) where it is expected that the survey will still show a weak economic outlook for the next 6 months. On Wednesday, the US expects to release their June CPI data as expected at 3.1% yoy (the slowest growth since March 2021), slipping further from May’s 4%. Meanwhile, June Core CPI (excluding volatile goods prices such as food & fuel), is expected to grow 5% yoy, tame from 5.3% in May but still more than double the Fed’s target of 2%. Inflation at the producer level is also predicted to tame further to 0.4% yoy, from 1.1% in May. Another highlight may be China’s Trade Balance (June), where market participants will monitor their Export & Import growth as one of the benchmarks that determine the certainty of the global recession forecast. China is currently grappling with a trade war over the hi-tech sector with the US while they still need to get their economy back on track. After months of the US & allied countries tightening the ban on imports of Chinese-made chips and then tightening Chinese companies’ access to cloud services, China recently counterattacked by cutting off exports of metals essential for chip manufacturing. The 2Q/2023 earnings season is about to begin where global investors will also be monitoring the financial reports of major US banks after the results of the annual stress test were quite encouraging, where the Federal Reserve was able to conclude that a number of banks with the largest lending positions have enough capital to survive if the economic situation turns worse.
In terms of commodities, oil prices on Friday closed at a 9-week high with Brent & US WTI posting a 5% surge last week, supported by inventory concerns and technical buying needs; which temporarily masked concerns that further interest rate hikes will further slow the pace of global economic growth and therefore reduce demand for crude oil. As for OPEC+, it has announced production cuts of around 5 million barrels/day, equivalent to 5% of global oil demand. Oil prices were also supported by weakness in the dollar, which hit a two-week low after a strong US employment report supported expectations of further Fed rate hikes. A weaker US Dollar makes crude oil cheaper for holders of other currencies, which is expected to boost oil demand.
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