Last week review:
The world has entered a mild recession phase, meaning that Fed’s “medicine” is (finally) working. The looming threat of recession in the US as well as China’s weak economy made global financial market sentiment rather gloomy affecting Indonesia’s capital market with 1.18% decline during last week’s trading; as well as foreign sell-offs at IDR 1.1trillion (all markets). In the past week, the Dow Jones also lost 1.1%, the S&P500 deflated 0.3%, and the Nasdaq fell into negative territory as low as 0.4%. Soft landing signs are starting to appear with April US inflation managed to tame back to below the 5% forecast level at 4.9% YoY, Initial Jobless Claims came in at 264k, the highest claims in 1.5 years. The latest news on the US banking crisis emerged after PacWest Bancorp reported a 9.5% drop in their deposits last week. The above factors have led to predictions that the Fed will soon halt the upward trend in US interest rates as signs of a mild recession emerge. Even the market is starting to factor in at least a 95% chance of a rate pause at the upcoming FOMC Meeting in June. On the one hand, the US government & Parliament are still struggling to reach an agreement on the US debt ceiling which has touched USD 31.4 trillion, before the threat of default becomes a reality on June 1. From Asia, Japan & China are stumbling around trying to revive their economies. Japan’s Services PMI (Apr.) slowly shifted more into expansion territory, but Household Spending (Mar.) still dropped below expectations. China’s economic recovery also seems to lack effort; although China managed to grow its Trade Balance (Apr.) surplus to USD 90.21 billion, China’s Inflation (Apr.) data seems to be slipping now at 0.1% YoY (from 0.7% the previous month), the slowest pace in 2 years. Deflation at the producer level or PPI, new credit growth that plummeted in April, as well as their contracting imports caused commodity prices such as copper, iron ore, and crude oil to slide. The above data dragged down the Chinese stock index by 2% in the last trading week; the MSCI index for Asia-Pacific stocks also lost 1.4% on a weekly basis. From Europe, Germany released its Inflation (Apr.) data which also met expectations of slipping to 7.2% YoY & 0.4% MoM. Meanwhile, UK property sector health data, the Halifax House Price Index (Apr.) showed relatively weak housing demand. The Bank of England solidified their upward trend in interest rates with another 25 bps hike to 4.5%, although the slowdown in the UK economy was clearly evident in 1Q23 GDP growth which shrank to 0.2% YoY. Indonesia reported Foreign Exchange Reserves (Apr.) at USD144.2bn (equivalent to 6.3 months of import cover), slightly lower than March’s USD145.2bn. Indonesia’s Consumer Confidence Index for April 2023 which came out higher at 126.1 (vs. 123.3 in March) was unable to curb the selling wave this May.
This week’s outlook:
This week begins with the announcement of important economic data on Trade Balance (Apr.), after which, investors will closely monitor progress regarding the US debt ceiling, while awaiting comments from Federal Reserve policymakers on the future direction of monetary policy. Economic data from the Eurozone, UK and China will provide further insight into the strength of the global economy. The US will release Retail Sales & Industrial Production data on Tuesday, where retail sales are expected to rebound. The weekly Initial Jobless Claims faithfully awaits on Thursday. The US government must quickly reach an agreement to raise its USD31.4 trillion debt ceiling to prevent a default on June 1. The IMF warned that US default would have a very serious impact on the US & global economy. On Tuesday, a number of European countries will release their economic data; preceded by the Eurozone which will release its revised 1Q23 GDP data on Tuesday where economists expect the economy to expand by just 0.1%; indicating that stagnation continues and a recession could emerge this year. The ZEW institute survey on business sentiment & conditions in Germany, as Europe’s largest country, is also expected on the same day. The UK will also announce labor wage data as their inflation remains at double digit levels. Tuesday will be jam-packed with Chinese economic data including Retail Sales, Industrial Production, & Fixed Asset Investment reports; in which economists are hoping for a significant acceleration in all three. China’s economy is still struggling to gain momentum, casting doubt on its contribution to global economic growth.
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