Summary:
THE US HAS COMPLETED THEIR INFLATION DATA AND CAME TO THE CONCLUSION THAT IT LOOKS LIKE INTEREST RATES ARE HIGHER FOR LONGER. After US CPI (Feb) proved to be still on a hot trend at 3.2% yoy, higher than forecast & previous period at 3.1%; Core CPI (Feb) followed suit with an above expected level of 3.7%, which was released at 3.8% yoy and recorded an increase of 0.4% on a monthly basis which also means that it has not budged from Jan. Lastly, US PPI completed the US Inflation data package with a monthly growth of 0.6%, higher than expected as well as Jan’s 0.3%. The above scenery which seems less supportive for the idea of a rate cut as soon as possible this year, seems to be exacerbated by the Initial Jobless Claims data which states that weekly jobless claims turned out to be smaller than expected, as well as Retail Sales which is even in an improving trend: in Feb it was able to turn positive 0.6% from negative -1.1% in Jan. Reading the situation, the chances of the first 25bps pivot to occur in June became somewhat shaky to 55.2% down from 60.1% in the previous week, as quoted from Investing.com’s Fed Rate Monitor Tool. It seems that US markets are starting to lose their euphoria factor and caused all three of their stock indices to post weakness over the past week. DJIA fell 0.02%, S&P500 dropped 0.13%, while NASDAQ plunged 0.73%.
ASIAN MARKETS: JAPAN finally managed to move out of the recession zone, when they reported 4th quarter economic growth at 0.4% yoy, even beating expectations of -0.4%. It seems that this strong economic improvement is the reason why the NIKKEI stock index managed to hit a 1989 high. On the flip side, CHINA reported that the amount of new loans disbursed by banks there actually fell lower than expected in February, from a record point in the previous month, amid efforts by China’s central bank to stimulate economic growth and combat deflationary pressures. Chinese banks disbursed CNY 1.45 trillion in credit volume (Feb), lower than the forecast of CNY 1.54 trillion and much smaller than Jan’s CNY 4.92 trillion. Loan growth also bottomed at 10.1% yoy, compared to 10.4% in Jan, and below analyst expectations of 10.2%.
EUROPEAN MARKETS: GERMANY as the number one economy in Europe, managed to push down Inflation in Feb to 2.5% yoy, as expected it was lower than Jan at 2.9%. UK also provided encouraging data, that their GDP (Jan) recovered from -0.1% in the previous month, to positive 0.2% on a monthly basis.
INDONESIA : a number of important economic indicators colored Indonesia’s relatively short week (only 3 trading days) after being cut short by the long-weekend beginning of the Fasting month and Nyepi Day. Consumer Confidence (Feb) fell slightly to 123.1 from 125 but overall still quite upbeat, especially as Retail Sales (Jan) also increased to 1.1% in Jan, from 0.2% in the previous period. However, what was somewhat unexpected was the Trade Balance surplus figure in Feb which narrowed significantly to USD 870 million, well below the forecast of USD 2.32 billion and USD 2.0 billion in Jan; due to significantly higher Imports and lower-than-expected Exports.
COMMODITIES: OIL prices posted gains of more than 3% over the past week, helped by increased demand from US refiners who are completing their maintenance/overhaul process; amidst uncertainty on when a US interest rate cut could materialize. Prices have moved between a range of USD 80 – 84 over the past month. The International Energy Agency on Thursday raised its oil demand forecast for 2024 for the fourth time since November on the back of Houthi attacks on commercial vessels in the Red Sea. The IEA expects global oil demand to increase by 1.3 million barrels/day this year, up 110k bpd from last month. The forecast shows a slight supply deficit for this year should OPEC+ decide to extend their production cuts. US oil and natural gas refining activity was also the highest since September. Last week’s price increase even occurred when the US Dollar was strengthening at its highest pace in 8 weeks. A higher USD should discourage non-US buyers. Other support also came from political tensions in continental Europe, as Ukraine launched a drone attack on a Russian refinery, setting fire to Rosneft’s largest refinery which is vital for Russia.
This week’s outlook:
The decisions of a number of central banks will be the center of attention of global market participants, especially regarding when the Federal Reserve will cut interest rates as soon as possible. Conversely, the Bank of Japan is also likely to further realize the discourse of exiting the era of negative interest rates after the past months have been anticipated by market participants.
A number of US Inflation data both on the consumer and producer side have been sufficient input for the outcome of the FOMC MEETING which was originally decided on March 21 with almost fully priced-in projections that interest rates will be held at 5.25% – 5.50%. More importantly, central bank officials are expected to comment on when the rate cut will occur, amidst a resilient US economy and persistent inflationary pressures. Analysts still believe that the market will see the first pivot in June, but the Wait & See period will still be colored by a number of economic data that still needs to be monitored, as Federal Reserve Chairman Jerome Powell said that he needs to see more evidence if the Inflation trend is indeed declining before being confident of cutting interest rates.
Japan’s central bank will precede with a meeting this Tuesday, which is expected to be the most critical meeting after 8 years of negative interest rates. BANK OF JAPAN is expected to end its negative interest rate trend this week after major Japanese companies agreed with labor organizations to raise wages to a 33-year high. Neighboring CHINA, will also follow on Wednesday with their interest rate announcements which should still be held unchanged at 3.45% for the PBoC Loan Prime Rate, and 3.95% for the 5-year prime rate.
The BANK OF ENGLAND is also not to be outdone by following up with a rate decision announcement on Thursday, having previously noticed Wage growth strengthening even more than in the US & Eurozone. But before that, it will first monitor the UK CPI figures (Feb) which are forecast to cool further to 3.5% yoy from 4.0% in Jan. Markets now expect the BOE to initiate a rate cut from 5.25% (highest since 2008) in Aug, after the Fed and ECB have done their part. COMMODITIES: OIL prices will also be influenced by the Fed meeting decision which is due to be released at 01.00WIB on Thursday, in view of the rate cut will actually boost oil demand in the US.
INDONESIA: this week will look forward to important national decisions related to the KPU’s official decision on the 2024 election results. Market participants will also monitor the nation’s overall reaction regarding the President-elect, regarding one or two rounds which will play a major role in maintaining the current bullish market atmosphere. On the same date, March 20, the central bank will also announce its interest rate decision which is unlikely to move from 6.0%.
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