Last week review:
In last week’s trading, which was shortened by the US Labor Day holiday on Monday, all three major Wall Street indexes recorded weekly declines on average with the S&P500 dropping 1.3% while the Nasdaq slumped 1.9%; thereby halting a two-week rally. Meanwhile, the Dow dropped 0.8% last week as investors nervously awaited the US Inflation reading for August, which is due to be released on September 13; which will heavily influence the decision on the benchmark interest rate by the Federal Reserve at the FOMC Meeting on September 20. Financial markets were dominated by the sentiment of 3 consecutive months of rising crude oil prices and recorded bullish moves in early September (likely towards OPEC+ target of USD 100/barrel); while last week’s US economic data also triggered Inflation concerns. Data on service sector activity in the US came in stronger than expected; while weekly jobless claims fell below estimates. US Treasury Yields closed higher last week after economic data showed resilience and Fed officials returned to a hawkish tone for the US central bank, signaling the trend of high interest rates will still persist for some time while watching the release of economic data one by one. Moreover, the recent rally in oil prices may block the path of US Inflation towards the 2% Target. However, traders still consider a 93% chance that the Fed Funds Rate will be decided to remain at 5.25% – 5.50% at the FOMC Meeting this September, while the chance of rates being held flat again in November stands at 54%, as reported by CME Group FedWatch. Goldman Sachs sees a 15% probability that the US will fall into recession within 12 months, down from its previous estimate of 20%.
The Energy sector posted one of its best performances last week. Crude Oil continued to climb 2 weeks in a row as traders hedged against the prospect of supply shortages, triggered by Saudi Arabia and Russia’s plans to reduce production by a total of 1.3 million barrels per day until the end of the year; amid the fall season that is about to begin. US oil stockpiles have been reported to drop more than expected several times. West Texas Intermediate (WTI) crude oil hit a 10-month high of USD 88.09/barrel on Wednesday. WTI rose 2.2% on the week, following a 7.2% gain in the previous week. Brent, meanwhile, climbed 2.4% last week, continuing its 4.8% surge in the previous week. Both Brent and WTI prices have climbed 20% since the end of June. On the other hand, the Dollar Index (DXY) rose to a high of 105.00, above a 6-month high. The stronger US Dollar is expected to make oil more expensive for non-US consumers, which will affect demand. In addition, US oil refineries usually enter a maintenance period in September-October. Additional production from Iran, Venezuela, and Libya is also expected to balance global supplydemand. Caixin Services PMI & Chinese Composite PMI (Agus.) which were also the focus of attention of market participants last week were released still weaker than the previous month. It is also a consideration that fuel demand from China may not be as great as expected as their economy is still struggling for recovery.
As for other energy commodities, Coal prices also surged due to a number of sentiments, ranging from the Indian government’s decision to ask power producers to import 4% of their coal needs, the increasing use of coal-fired power plants in Europe, gas prices creeping back up to mine closures and production cuts in China. Proof that China plays an important role in the world economy, was when the US stock market was dragged down by Apple shares and a massive sell-off in chip-based technology stocks, triggered by fears of a ban on iPhone products in China. Bloomberg reported that China plans to expand the ban on iPhone products across state companies, after establishing a ban on the use of government employees. The iPhone market in China is one-fifth of Apple’s total market share worldwide. Furthermore, China also announced negative growth data for their Exports & Imports in August, although the decline has started to slow down from the previous month. As a result, with China’s Exports fell 8.8% and its Imports also slumped 7.3%, China was only managed to book a Trade Balance of USD 68.36 billion, failing to meet expectations & also lower than the previous month.
European markets: PMI data for several major European countries are still struggling in contractionary territory. The UK housing market is still growing negatively; while German Industrial Production was recorded at a minus above estimates, signaling that the value of output produced by manufacturers, mines, and utilities from Europe’s largest economy has not been able to rise in its third month. This fact is in line with Inflation (Agus.) in Germany which edged down to 6.1% yoy, from 6.2% the previous month. Eurozone released revised Q2/2023 GDP which further fell to 0.5% yoy growth, below estimates & previous quarter.
Other Asian markets: Japan reported 2Q23 GDP growth of 4.8% yoy, below 6.0% forecast, but clearly higher than the previous quarter’s 3.2%. Indonesia’s August Foreign Exchange Reserves fell slightly to USD 137.1 billion (equivalent to 6-month import financing & above international standards), from USD 137.7 billion the previous month; due to government external debt repayments and used in efforts to stabilize the Rupiah exchange rate. Meanwhile, Indonesia’s Consumer Confidence Index came in at 125.2 for August, up from July’s 123.5.
The G20 Summit held in New Delhi, India ended on Sunday as India handed over the presidency baton to Brazil, while the US & Russia praised the consensus that did not condemn Russia for its decision to invade Ukraine, but still did not support the violence in the war zone for humanitarian reasons. Indian Prime Minister Narendra Modi asked the G20 leaders to hold a virtual meeting in November to review the policy recommendations and progress towards the targets announced last weekend.
This week’s outlook:
European markets: PMI data for several major European countries are still struggling in contractionary territory. The UK housing market is still growing negatively; while German Industrial Production was recorded at a minus above estimates, signaling that the value of output produced by manufacturers, mines, and utilities from Europe’s largest economy has not been able to rise in its third month. This fact is in line with Inflation (Agus.) in Germany which edged down to 6.1% yoy, from 6.2% the previous month. Eurozone released revised Q2/2023 GDP which further fell to 0.5% yoy growth, below estimates & previous quarter.
Other Asian markets: Japan reported 2Q23 GDP growth of 4.8% yoy, below 6.0% forecast, but clearly higher than the previous quarter’s 3.2%. Indonesia’s August Foreign Exchange Reserves fell slightly to USD 137.1 billion (equivalent to 6-month import financing & above international standards), from USD 137.7 billion the previous month; due to government external debt repayments and used in efforts to stabilize the Rupiah exchange rate. Meanwhile, Indonesia’s Consumer Confidence Index came in at 125.2 for August, up from July’s 123.5.
The G20 Summit held in New Delhi, India ended on Sunday as India handed over the precidebcy baton to Brazil, while the US & Russia praised the consensus that did not condemn Russia for its decision to invade Ukraine, but still did not support the violence in the war zone for humanitarian reasons. Indian Prime Minister Narendra Modi asked the G20 leaders to hold a virtual meeting in November to review the policy recommendations and progress towards the targets announced last weekend.
Continental Europe also will also report several data, with the UK scheduled to release their employment data through the average wage index and unemployment rate as well as new hires for July & August; before they publish Construction Output, GDP, Industrial & Manufacturing Production, Trade Balance for July. Germany will provide their business climate outlook for the next 6 months with the German ZEW Current Conditions & Economic Sentiment reading (Sept.). On Thursday, September 14, the ECB will announce its interest rate decision which predicted to remain at 4.25%.
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