Last week review:
Last week was opened by Indonesia Trade Balance (Apr.) which successfully maintained its 36th consecutive month of surplus, at USD 3.94 billion, higher than expectations of USD 3.38 billion. Indonesia also reported 1Q23 external debt levels remained under control at USD 402.8 billion, which is equivalent to 30.1% of GDP. The US announced US Retail Sales (Apr.) and Existing Home Sales (Apr.) data which showed weakening consumer spending. On the other hand, Industrial Production (Apr.) turned out to bounce back to 0.5% on a monthly basis, much better than the -0.1% forecast; in contrast to the Eurozone which reported Industrial Production (Mar.) data of – 4.1% on a monthly basis, a bigger drop than the -2.5% forecast. Uncertainty over US interest rates and their government debt ceiling negotiation process that is approaching the June 1st deadline also still clouded market sentiment. From a number of Fed officials’ comments, they stated that they remain comfortable enough to leave the US benchmark interest rate at a high level, for now. The release of the all-important labor data in which Initial Jobless Claims fell to 242,000 (lower than expected as well as the previous week), is a sign that the labor market is still tight. However, about two-thirds of market participants expect the Federal Reserve to ease the pace of interest rate hikes at next month’s FOMC Meeting. The economic slowdown atmosphere was also noticeable in continental Europe, where the UK reported a higher Claimant Count Change (Apr.) and Unemployment Rate. German ZEW Economic Conditions & Sentiment (May) and German PPI (Apr.) came out at mixed numbers but did not fully imply solid economic conditions; moreover, Eurozone ZEW Economic Sentiment (May) even showed a very weak position at -9.4, much lower than the expectation of -1.0. Eurozone GDP for 1/2023 came inline at 1.3% YoY, and they were able to post a Trade Balance (Mar.) of EUR 25.6 billion, greater than the previous period’s EUR 3.7 billion. Previously, the Eurozone also reported CPI (Apr) which was still in-line at 7% YoY. As Asia’s largest country, China has not been able to boost their economy as expected, proved by the Industrial Production (Apr.) and Retail Sales (Apr.) data which have not been able to rise to the level expected by economists/analysts. In contrast, Japan confirmed its 1Q23 GDP at 1.6% YoY, higher than the 0.7% forecast and managed to reverse the situation from negative 0.1% in the previous quarter. Industrial Production (Mar.) also rose, and Trade Balance (Apr.) managed to post a smaller deficit. This inevitably put Japan’s National CPI & Core CPI (Apr.) at 3.5% & 3.4% YoY respectively. Japan’s recovering economy has market participants expecting the central bank of Japan to end its super-loose monetary policy soon and start raising its benchmark interest rate from a negative rate.

This week’s outlook:
The week will begin with predictions of China keeping their interest rates at current levels; as investors digest the impact of the G7 summit decision on China and discuss the urgency of the US debt ceiling situation. According to the latest news, President Joe Biden and Republican Kevin McCarthy will meet soon after Biden’s return from the G7 Summit to reach an agreement that could ease the overall financial market sentiment. This week will also be filled with monetary policy announcements in New Zealand, which is predicted to increase by 25 bps to 5.5%; while South Korea and Indonesia are expected to keep their benchmark rates unchanged at the current 3.5% and 5.75% levels respectively; as well as unemployment and Retail Sales data from Japan. PMI data (May) for Germany, the UK and the Eurozone will determine whether the economies managed to expand slightly as expected, or contracted slightly due to the effects of the global economic slowdown that became more apparent last week. While the US will follow with reports on Building Permits, New Home Sales (Apr.), Pending Home Sales (Apr.), and S&P Global Composite PMI (May) whose results will help the Fed decide whether it is possible to put the brakes on the pace of interest rate hikes at the upcoming FOMC Meeting in June. The UK is desperately trying to drag down their Inflation, which is still firmly in double digits, from 10.1% in Mar. to April’s forecast of 8.3%, with results will be released this Wednesday. The important German Ifo Business Climate Index (May) is expected to release data that is quite pessimistic for the business climate in Germany over the next 6 months.

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