Last week review:

Highlight of the week: Global CPI data. Starting with China which revealed mounting deflationary pressures, their PPI (June) recorded the sharpest decline since 2015 triggered by both weak domestic & foreign demand; and CPI (June) which also remained flat at 0% YoY, the slowest growth since 2021. The data release strengthens speculation that China’s central bank will continue to cut interest rates and unveil new stimulus measures to provide fuel for the post-pandemic economic recovery. On the other hand, at least there are starting to be bright spots from China which reported that new credit disbursed to individual consumers & corporations in June managed to rise significantly to CNY 3.05 trillion, far exceeding expectations and more than twice the amount in the previous month.

Global investors welcomed the US Inflation rate which in June successfully eased to 3% YoY, compared to 4% in May. However, what becomes an obstacle is the position of Core CPI (June) which is still at 4.8% YoY (although it has cooled down from May at 5.3%); which is still twice as high as the Federal Reserve’s 2% target. The data underscores the expectation that the Federal Reserve does not need to raise interest rates again after the 25bps planned for the July FOMC Meeting.

From Europe, Germany reported its CPI (Jun) heating up at 6.4% yoy and 0.3% mom. It’s no surprise that the German ZEW Current Conditions & Economic Sentiment (Jul) depicts that market participants in Germany are still looking a little pessimistic about the economic situation & business sentiment in the next 6 months. France reported the good news that their Inflation rate (June) eased to 4.5% yoy, compared to May at 5.1%. Overall, Industrial Production for all Euro Zone countries recorded a weakening in May at -2.2% yoy compared to the previous month’s positive 0.2%.

Another sentiment that moved the market was the rise in the S&P500 banks index where market participants are looking forward to the release of performance from major banks such as JPMorgan Chase on Friday which will start the 2Q23 earnings season. The US banking sector is expected to report higher earnings in 2Q23, as higher lending rates offset lower loan volumes.

From the East, South Korea reported Unemployment Rate (June) grew at 2.6% (vs 2.5% on May). They reported Export & Import Price Index (June) which dropped further below estimates. South Korea’s central bank has also set interest rates to remain flat at 3.5%. Meanwhile, Japan reported Core Machine Orders (May) which fell unexpectedly sharp on both an annual and monthly basis. Not surprisingly, their PPI (June) figure also missed expectations, and even still saw monthly deflation of 0.2% MoM (following -0.7% in May).

Bank Indonesia (BI) noted that consumer confidence towards economic conditions has decreased slightly, reflected in the June Consumer Confidence Index (CCI) at 127.1, down slightly from 128.3 in May. BI believes that the reading is still maintained in the strong zone, supported by consumer  optimism for a solid Current Economic Conditions Index and Consumer Expectations Index. The Healthcare sector was one of the top gainers last week after the passing of the Health Law by the House of Representatives (which was marred by demonstrations by a number of health professional organizations). Positive sentiment for the JCI last week which managed to record a gain of 2.28% (supported by Foreign Net Buy of IDR 563.17bn) also came from the comments of Finance Minister Sri Mulyani Indrawati who expects Indonesia’s economic growth to reach a range of 5.0 – 5.3% by the end of 2023. For the first semester of 2023, the Indonesian economy is estimated to reach a range of 5.0 – 5.2%, while for the second semester of 2023 it is estimated to reach 5.0 – 5.3%. Sri Mulyani said that the economic growth will be supported by consumption and exports that are maintained until the end of the year.

This week’s outlook:

2Q23 corporate performance reports will color the market this week, plus economic data related to economic growth and Inflation data from European countries will still grab the attention of financial market participants; meanwhile Crude Oil is expected to be able to book another weekly gain. US Retail sales (June) is expected to increase 0.5% mom, driven by rebounding auto sales and higher gas station sales, suggesting that consumer demand remains resilient. Investors will also get an update on the health of the housing sector with the Building Permits, Housing Starts, & Existing Home Sales reports. There will also be regional manufacturing activity reports, which are expected to remain sluggish along with weekly Initial Jobless Claims data.

A series of economic data from China on Monday is expected to further show China’s post-pandemic economic revival is still losing momentum rapidly, fueling expectations that Beijing will soon need to implement more stimulus measures. China’s GDP is expected to grow by 7.3% yoy in Q2/2023, compared to 4.5% growth in the first quarter. Meanwhile Japan expects to reduce its Trade Balance deficit to JPY 46.7bn on the back of Export growth. Japan expects economic growth to be reflected in National CPI (June) data which is predicted to rise to 3.5% yoy (vs previous 3.2%) The UK will release June inflation data on Wednesday and investors will be watching closely as it is likely to determine the size of the Bank of England’s next interest rate hike. UK CPI (May) is expected to fall to 8.2% yoy from 8.7% in May as food and fuel prices fell. Core inflation is also expected to be slightly lower, but the services component is expected to remain stable at a postCOVID high of 7.4%. The UK will see if their Retail Sales (June) are able to curb the long-running decline to -1.5% yoy, from the last level of -2.1%. The Euro Zone itself will also face the reality of whether their Inflation figure (June) is able to cool further to 5.5% yoy, lower than May’s 6.1%.

Indonesia itself will start the week with the Trade Balance (June) reading where the figure is expected to expand by USD 1.35 billion, after a drop of USD 440 million last month. However, the achievement holds a big question mark regarding Export & Import growth in June. Indonesia will also monitor Retail Sales growth which the other day slowed to – 4.5%.

World crude oil prices recorded a third consecutive weekly gain last week of almost 2% and the rally could continue this week on the back of easing inflation, plans to replenish US strategic reserves, as well as production cuts by OPEC+ and inventory disruptions in Libya & Nigeria.

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