Last week review:
US LABOR DATA AS THE LAST INPUT FOR THE DECEMBER FOMC MEETING!!!
US employment data dominated the attention of market participants last week, where 3 important reports plus one jobless claim will greatly affect the US central bank’s monetary policy this week. Starting from JOLTs Job Openings (Oct.) and ADP Nonfarm Employment Change (Nov.) which were released lower than expectations, last week was closed with Nonfarm Payrolls (Nov.) released at 199K, higher than the estimate of 180K and stronger than the previous month at 150K. The Unemployment Rate (Nov.) also managed to flatten to 3.7% from 3.9% in October. Not to mention the average hourly wage rate is suspected to have experienced double growth from 0.2% in the previous month to 0.4% in November. Another catalyst that suggests the labor market has not fully loosened up also came from the lower-than-expected weekly Initial Jobless Claims figure. Meanwhile, the growth of business services activity in the US looks to be firmly in expansionary territory. The mixed labor data above led the US stock market to triumph by recording its longest weekly gain since 2019, as optimism that the US economy will avoid recession amid speculation that an interest rate cut could occur in the first quarter of next year.
ASIA & EUROPE MARKETS: Japan reports 3rd quarter GDP plunging into recessionary territory; similar to Eurozone where Q3/2023 economic growth came in at -0.1% qoq compared to 0.1% in the previous quarter. This slowdown in the European economy is one of the prices that must be paid as a form of their Inflation control, reflected in the German CPI (Nov.) which on a monthly basis recorded deflation, and on an annual basis successfully slid to 3.2% yoy from 3.8% in October. In Europe’s largest economy, German Factory Orders and Industrial Production (both for October) still experienced negative growth. On the one hand, PMIs of several major European countries such as Germany, Eurozone, UK appear to be growing although not all of them have managed to leave contractionary territory (below 50). Good news from China: Their Composite PMI is finally slowly growing in expansionary territory; Trade Balance surplus increased due to massive Export growth outpacing Import decline. Unfortunately their CPI & PPI (Nov.) are still falling deeper into deflationary territory.
COMMODITIES: The US announced Crude Oil Inventories fell lower than expected, but it turned out that their gasoline stockpile ballooned at 5.421 million barrels, well above the prediction of about 1 million barrels. Inevitably, the spike sent Oil prices plummeting by around 4% for both contracts (Brent & WTI) triggered by fears of over-supply and sluggish global demand, especially after OPEC+ countries agreed to increase voluntary production cuts by 2.2 million barrels/day starting early next year.
INDONESIA: announced that Foreign Exchange Reserves (Nov.) increased to USD 138.1 billion, safe enough to cover 6 months of imports, followed by Consumer Confidence Index (Nov.) which slightly deflated to 123.6 from 124.3 in the previous month. Amidst the bullish JCI reaching NHKSI RESEARCH’s Year End Target at 7130-7150 area (which is the highest point since September 2022), it turns out that foreign buying interest in Indonesian stocks is still dry as Foreign Net Sell was recorded at IDR 876.8bn (all markets) last week, and brought the YTD net buy position to IDR 2.27 trillion only.
This week’s outlook:
The culmination of the last monetary policy of the year will be fulfilled by US Inflation (Nov.) data which will be released on Tuesday as the last piece of the puzzle, where CPI (Nov.) is expected to flatten to 3.1% yoy, vs. previous 3.2%; although on a monthly basis an increase in PPI (Nov.) which states that the price index in the
producer sector rose 0.1%, compared to -0.5% deflation in October. The combination of this data plus the labor data released last week will certainly influence this week’s FOMC Meeting decision which is scheduled to come out on Thursday morning at 01:00 WIB. As reported by Investing.com’s Fed Rate Monitor Tool, the probability that the Fed will hold rates at 5.25% – 5.50% at this month’s FOMC Meeting is almost 100% fully priced-in. Meanwhile, there is already more than a 50% chance that the central bank will be able to cut 25 bps as soon as the March meeting next year. Market participants are anxiously awaiting Federal Reserve Chairman Jerome Powell’s comments on the direction of monetary policy next year, with many beginning to envision a pivot on the horizon. If the Fed’s board of officials is loyal to determining the direction of its policy based on a number of economic data, then in fact this week they will look at Retail Sales (Nov.) as an input regarding people’s purchasing power especially in the festive season, plus Industrial & Manufacturing Production (Nov.), plus a preliminary estimate of the S&P Global Services PMI (Dec.), and of course the weekly Initial Jobless Claims figure, all of which will be announced after the FOMC Meeting decision.
In continental Europe, this Thursday will also be an important day for the UK and Eurozone central banks as they will also issue interest rate decisions, where both are forecast to hold rates in place, 5.25% for the Bank of England and 4.5% for the European Central Bank. But before that, some important economic data should be considered such as: UK employment + unemployment data, UK Industrial & Manufacturing Production; plus Eurozone Industrial Production (Oct.), as well as German ZEW Economic Sentiment (Dec.) which expresses views regarding German businesses 6 months ahead. Closing out the week, market participants will be focusing on a number of important economic data from China namely: Industrial Production (Nov.), Retail Sales (Nov.) and Unemployment Rate (Nov.).
INDONESIA will precede Europe in releasing Retail Sales figures today at around 10.00 WIB which will be compared to the previous reading of 1.5%. At the end of the week, Indonesia will announce the Trade Balance (Nov.) figure which is predicted to have a slight surplus to USD 3.06 billion, compared to USD 3.48 billion in October. What is important to see is whether the Export & Import position has been able to experience better growth than before, or at least the rate of decline has slowed down.
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