Summary:

Last Week Review

• LATEST US CPI FURTHER CONFIRMS THE FED’S DOVISH TONE. The main highlight that market participants were waiting for last week was none other than US CPI for June, which proved to have slipped further to 3.0% yoy from 3.3% in the previous period, also lower than the 3.1% forecast. On a monthly basis, the June US Inflation figure actually recorded a decline of 0.1% mom, contrary to the forecast of a 0.1% increase. US CORE CPI was also recorded to only grow 0.1% mom, lower than the 0.2% expectation according to the previous month.

• In the past week, the S&P500 and NASDAQ Composite have hit record point after record point in the context of market euphoria welcoming the Fed’s increasingly dovish stance, starting from Fed Chairman JEROME POWELL’s statement recognizing that Inflation has been in a downward trend and more “good” data in the sense that economic indicators are in line with what the central bank expects, it will make the Federal Reserve more confident in determining interest rate cuts.

• Apart from the US PPI data aka Inflation at the producer level which turned out to grow 0.2% mom last month (exceeding economists’ forecasts at 0.1%) and recorded an annualized rate of 2.6% yoy, the market has calculated the chances of a 25bps rate cut in September jumped to 94%, from 78% a week earlier; reported by CME FedWatch. Stock markets continued their euphoria, for last week the S&P 500 rose 0.9%, the NASDAQ added 0.2% and the Dow rose 1.6%.

• MORGAN STANLEY predicts that the CORE PCE price index (the Fed’s favorite inflation benchmark, which excludes the volatile components of food and energy prices) will rise 0.205% in June, from 0.08% in May; and grow 2.57% yoy, marking the second lowest inflation level of the year. However, this faster pace of Inflation will be masked by the UNIVERSITY OF MICHIGAN’s outlook that US consumers’ expectations of Inflation a year from now will be able to fall to 2.9% (softening from 3% previously).

• EARNINGS SEASON: Wall Street has kicked off the 2nd quarter corporate earnings reporting period, which was opened by a trio of big banks: JPMorgan Chase, Citigroup, and Wells Fargo with mixed results. JPMorgan Chase, the largest bank in the US, reported Q2 results that exceeded analysts’ estimates, while Wells Fargo & Citigroup joined the negative zone as their share prices plunged 5% and 1% respectively after cutting their net interest income outlook and reporting underperformance. Analysts expected Q2 performance of S&P 500 companies to jump 9.6%, with strong growth from Technology companies but offset by lower earnings in Real Estate, Industrials and Materials; according to LSEG data.

• US POLITICS: US President JOE BIDEN is facing increasingly loud calls to withdraw from the US Presidential candidacy because a younger candidate would be better suited to take on such a heavy task. Especially since President Biden last time mispronounced the name of the president of Ukraine as President Putin when it should have been President Zelensky, and also confused VP Kamala Harris with Donald Trump; leading to public criticism and questioning his competence in relation to old age; especially when his personal doctor had expressed suspicion of early symptoms of Parkinson’s disease. Meanwhile, presidential candidate DONALD TRUMP suffered an assassination attempt during a campaign rally in Pennsylvania. It is expected that this incident will add to Trump’s popularity on the way to victory, although economists are worried that market expectations will be crushed as Trump’s plan seems to be raising taxes this time (instead of reducing taxes like his previous term) in order to secure fiscal to cover the budget deficit of 7% of GDP and endless government debt.

This Week’s Outlook

Here are some of the focuses that market investors need to monitor this week:
• Former President DONALD TRUMP will receive his party’s official nomination for the US presidential election this week at the four-day Republican National Convention in Milwaukee. His speech could behis first public appearance since the attempted assassination that occurred during a campaign rally in front of supporters in the Pennsylvania region.

• Market participants will also be watching for comments from FED CHAIRMAN JEROME POWELL who will be interviewed by David Rubenstein at the Economic Club of Washington DC. In his recent testimony on Capitol Hill, Powell highlighted the central bank’s ongoing efforts to address Inflation, noting some confidence that Inflation will fall towards the 2% target. Also, the Federal Reserve will publish the Beige Book report, which is a collection of anecdotal information on current economic conditions from each of the twelve Federal Reserve Districts. Jobless claims and retail sales data will also be released next week.

• QUARTER 2 FINANCIAL REPORTING season began last week, and will continue as soon as this Monday when Goldman Sachs and BlackRock are scheduled to report their financial performance. Later in the week, Bank of America, Morgan Stanley, and Netflix will also report their financial results.

• The EUROPEAN CENTRAL BANK (ECB) is widely expected to keep its interest rate at the current 4.25% level after cutting rates in June. Before that, INFLATION data from the UK & Eurozone will add color to the European bourses. Market participants are also keenly monitoring election developments in the UK and France, according to a Morgan Stanley note.

• ASIAN MARKETS: From CHINA a number of important economic indicators will be the focus of global attention: 2Q GDP, Industrial Production, Retail Sales. From INDONESIA, apart from Monday’s Trade Balance, the BI RATE decision will dominate on Wednesday where it is expected to remain on hold at the current level of 6.25%.

• COMMODITIES: HSBC has raised its average GOLD price outlook on the back of near-term strength due to rising hopes of a US interest rate cut, but also forecasts a potential price decline in Q4 this year or until 2025. The analysts have raised the average gold price outlook for 2024 from USD 2,160/oz to USD 2,305/oz. However, their forecast for 2025 is now down from USD 2,105/oz to USD 1,980/oz, which means there is a potential 12% drop from current levels. Analysts expect gold prices to recover in 2026, lifting the average price projection for that year from USD 1,880/oz to USD 2,025/oz.

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