Last week review:
Market participants responded positively to the success of the US Federal Reserve to keep their benchmark interest rate at 5%-5.25% at the FOMC Meeting last week. It was proven that during the past week the S&P 500 rose 2.6% (recorded as the fifth consecutive week), while the Dow added 1.2% and the Nasdaq soared 3.2% (an increase in the 8th consecutive week, and the longest weekly increase since March 2019). As a result, the S&P500 and Nasdaq reached their highest points since April 2022, supported by the Technology sector. The rally extended to Energy & Industrial sectors, as economic data showed that the US economy remains strong despite the upward trend in interest rates, meaning a soft landing was achieved; plus China cut its short-term interest rates to boost its economy. However, the Fed is still signaling a hawkish view that the benchmark rate could still rise another 50 bps (or two more times) by the end of the year, to a range of 5.5% – 5.75%. The Europe also reported Inflation levels that were safely under control,as evidenced by German CPI (May) coming in at 6.1% yoy, successfully easing from April at 7.2%. The Europe also reported Inflation levels that were safely contained, as evidenced by German CPI (May) coming in at 6.1% yoy, successfully easing from April at 7.2%. The UK reported GDP (Apr.) at 0.5% yoy, falling below expectations of 0.6% although it was actually up from the previous month at 0.3%. The European Central Bank raised interest rates for the eighth consecutive time by 25 bps, bringing the deposit rate to 3.5% and the borrowing cost to 4%. Lastly, the Eurozone Inflation rate in May was released down to an expected 6.1%, managing to ease from 7.0% in the previous month. Similarly, their Core CPI for May managed to tame to 5.3%, from 5.6% in April. Indonesia announced that the Consumer Confidence Index (May) rose to 128.3 from 126.1 in April; indicating a growing optimism towards the Indonesian economy. BPS noted that Indonesia’s trade balance returned to surplus in May 2023 amounting to USD 440 million. It was the 37th consecutive month of surplus, but the lowest amount since May 2020. Nevertheless, Exports & Imports scored a positive report with a significant increase above expectations, by 1% and 14.35% yoy respectively, signaling Indonesia is resistant to recession. Technically, JCI is still stuck between MA10 & MA20 Support, and still needs more motivation in trying to break the crucial Resistance 6735- 6785 and MA50.
This week’s outlook:
This week will be filled with other countries’ central banks following the Federal Reserve’s move in determining their interest rates. China is expected to cut their benchmark interest rates by 10 bps to 3.55% (deposit rate) and 4.2% (lending rate) in their latest move to boost the economy & move away from deflation. This move is expected to keep the Chinese Yuan depressed at its lowest point in 7 months. After China, the central banks of Indonesia and Philippines will also hold monetary policy meetings on Thursday; where both are expected to hold interest rates in place (Indonesia at 5.75%. and Philippines at 6.25%). Lastly, the Bank of England will decide whether to raise their benchmark interest rate by 25 bps to 4.75%, after they release Inflation data (May) on Wednesday where it is estimated that Inflation managed to ease to 8.5% yoy, from 9.7% in the previous month. The Asian continent has also been quite a story lately where Japanese stocks have surged 20% in two months and are at a 33-year high, while the MSCI Asia ex-Japan index last week surged 3%, the best week since January. Other potential market-moving events from the region will arrive later in the week including Japan’s Inflation data for May which is due for release on Friday. The annualized core CPI rate is expected to fall to 3.1% from 3.4% in April. The Bank of Japan last week left its ultra-loose policy unchanged and signaled it was in no rush to change its dovish stance even though inflation has exceeded the BOJ’s 2% target for over a year.
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