Last week review:
The US, which is entering a quiet period ahead of the FOMC Meeting that will begin tomorrow, June 13, managed to stay in positive territory on a weekly basis with the S&P500 rising 0.38%, extending its upside week for the fourth time and the longest since July-August 2022. The Nasdaq even chalked up its 7th consecutive week of gains and closed last week with 0.13% growth. Meanwhile, the Dow Jones managed to crawl up 0.33% last week on the back of a rally in mega-cap stocks (especially in the Technology sector, which was boosted by falling sovereign bond yields), better-than-expected earnings season results; and above all, most market participants’ expected that the US central bank is nearing the end of its interest rate hike trend. The CBOE Volatility Index, which measures the concerns of stock market investors, fell to its lowest point since the pandemic. Even traders have priced in a 72% chance that the Federal Reserve will hold the Fed Funds Rate at 5%-5.25% at the June 14 FOMC Meeting decision, as reported by the CME Group FedWatch Tool. The threat of global recession and the threat of stubborn inflation is still haunting. This is based on the US PMI (May) figures which are still contracting, Factory Orders (Apr) which are weakening, Initial Jobless Claims which rose to a 20-month high. The picture of a future world on the brink of recession is also felt in continental Europe, as evidenced by the PMI (May) reports for their three main regions namely Germany, the UK, and the Eurozone which are all still struggling to stay on the path of expansion. Even the World Bank is in unison by releasing the latest negative outlook for the global economy with the release of the Global Economic Prospect (GEP) June 2023 edition, where global economic growth in 2023 is projected to grow 2.1%. If this happens, then this year’s economic growth will slow down from 2022, which was 3.1%. Meanwhile, in 2024 global economic growth is expected to reach 2.4%. The global economic slowdown cloud was further emphasized by Trade Balance (May) figures from two of the world’s strongest countries, China & the US, where China released their Trade Balance (May) surplus figures which fell short of expectations. China’s Exports & Imports contracted by 7.5% & 4.5% yoy respectively. While the US also announced Trade Balance (Apr.) which recorded a deficit of USD 74.6 billion, swelling from the previous period at USD 60.6 billion. So far, China is still struggling to fulfill its role as a booster of global economic growth since their reopening. On the other hand, there was good news from the Chinese Composite PMI that managed to expand to 55.6 higher than the previous period’s 52.9, supported by their service sector. Sadly, China’s CPI (May) which is a benchmark of domestic demand & purchasing power did not bounce back and instead still in deflation at -4.6%. Interestingly, JCI also managed to jump 0.92% last week, securing IDR 81.54 billion worth of foreign net buy; increasing Foreign Net Buy to IDR 2.92 trillion on monthly basis and IDR 20.68 trillion on YTD basis. Indonesia’s economic growth sentiment seems to be much better than most of the world, as evident from the significant increase in foreign tourist numbers in April 2023, and the Inflation rate (May) falling to a 12-month low of 4%, from 4.33% in April. Indonesia released its Foreign Exchange Reserves (May) report which fell to USD 139.3 billion, compared to April’s USD 144.2 billion. During this week, the Rupiah exchange rate position is still settled at the psychological level of IDR 15000, closed at IDR 14835/USD last week.
This week’s outlook:
This week is predicted as a week that will bring many significant economic reports, as we await the Federal Reserve’s decision on whether to continue the upward trend in interest rates that has started since 15 months ago, or to begin slowing down. US will also monitor Inflation data (May) which will be a key determinant of the decision. Market expects to see US CPI able to slope back in May although Core Inflation will not shift much; and certainly still not enter the Fed’s targeted safe limit of 2%. The US economic calendar will also bring producer-level Inflation data, retail sales figures for May, and not forgetting the weekly Initial Jobless Claims. The European Central Bank & Bank of Japan will also hold meetings related to monetary policy, where the ECB is predicted to again set their interest rate hike by 25bps. As a reminder, the Eurozone Inflation rate is still at 6.1%, about three times the ECB’s safe target of 2%; although it has successfully slipped from its peak of 10.6% last October. Meanwhile, the world will still set its eyes on China’s economic report which will release the following data: new home prices, employment, industrial production, and retail sales all for the month of May, with the hope that the momentum of economic improvement after the Covid pandemic could be more vibrant. Domestically, Indonesia will monitor Consumer Confidence (May), Retail Sales, Trade Balance (May) where the surplus is predicted to weaken to USD 3.2 billion from USD 3.94 billion in April affected by signs of a global economic slowdown.
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