Last Week Review

• FCA REVISION AND RISE OF BIG BANKS BLUECHIP STOCKS BRINGS INDONESIA TO CLOSE LAST WEEK’S MARKET IN GREEN TERRITORY, increasing 0.44%. After the Indonesian market was cut short by two days of Eid al-Adha holiday on Monday and Tuesday last week, the adjustment & market movement experienced included FOREIGN NET BUY of IDR 693.78bn over the past week. INDONESIA’S CENTRAL BANK DECISION to hold interest rates in place at 6.25% was quite calming for the market, amidst other central bank decisions that also stayed in place such as PEOPLE’S BANK OF CHINA & BANK OF ENGLAND, although the UK is a country that has achieved their Inflation Target at 2.0% yoy in May, while the EUROZONE is still slightly grappling in the region of 2.6% yoy (rather tough to  get down from 2.4% in the previous month).

• The US reported a variety of important economic indicators for the Federal Reserve to consider where US Inflation is headed. Slowing economic growth was indeed evident from the below-expected US Retail Sales in May; similarly, the Philadelphia Fed Manufacturing Index (June) was unexpectedly weak. Housing Starts slumped 5.5% in May, while Existing Home Sales have been trending down for 3 consecutive months (although on paper they outperformed forecasts in May); as prices reach record highs and rising mortgage rates discourage potential buyers. Initial Jobless Claims also recorded 238k unemployment claims, above the forecast of 235k. On the other hand, the S&P Global US Manufacturing & Services PMI proved to be stronger in June.

• In response to the data, the market still has enough optimism for the chance of 2 Federal Reserve rate cuts this year (according to LSEG’s FedWatch report), although US central bank officials expect only 1 rate easing. But with regards to when the pivot could be imminent, market participants have slightly lowered their expectations and reckon a Fed rate cut could happen in September to 59.5%, somewhat lower than the previous week at 62% (As reported by’s Fed Rate Monitor Tool).

• In overall, the US market was still able to pocket gains last week with the DJIA gaining 1.44%, the largest weekly percentage gain since mid-May. The S&P appreciated 0.61% for the third consecutive weekly gain, while the NASDAQ only edged up 0.003% last week, still on its third consecutive weekly gain streak.

• INDONESIA recorded a Trade Balance surplus in May 2024 of USD 2.93 billion, which is the 49th consecutive month of surplus since May 2020. This surplus figure flew 585.86% compared to the same month in 2023 of USD 427.2 million and increased 7.72% compared to April 2024 which was valued at USD 2.72 billion. The surplus was supported by Exports surging 13.82% compared to April ’24, although May Imports also turned out to be up 14.82% compared to April.

This Week’s Ooutlook

For investors who wonder when interest rate changes will happen, the closely watched US PCE PRICE INDEX inflation gauge, as well as preliminary June Inflation data from several EUROZONE countries will be in the spotlight this week. The market is also concerned about signs of weakness in the Technology sector which has been firmly underpinning the market’s recent gains.

Here is what you need to watch out for regarding the markets this week:

• PERSONAL CONSUMPTION EXPENDITURES (PCE) price index, which is the Fed’s favorite Inflation gauge, will be released on Friday to show whether the downtrend in Inflation is still intact. As known, the latest PCE reading was not in line with expectations, as the data showed that US Inflation was sideways in April; which could weaken the argument that a rate cut could be imminent. Unlike the Fed, market participants still expect 2 rate cuts this year. The US economic calendar also includes June’s Consumer Confidence and May’s New & Existing Home Sales data. There is also the third estimate of Q1 US GDP, plus Durable Goods Orders data for May.

• TECHNOLOGY sector stocks are believed to have strong long-term prospects, given their solid earnings and hype over the revolutionary potential of artificial intelligence (AI). But fantastic price gains, including NVIDIA’s 155% year-to-date performance, have raised concerns that the Tech rally may be nearing its end. Laggard stocks such as small-caps and the Financials & Industrials sector may now look undervalued. If a pullback in the Technology sector does occur, investors may instead use the opportunity as a Buy on Weakness moment; the trend is your friend: over the past decade the NASDAQ 100 index has skyrocketed over 400% while the  RUSSELL 1000 has only gained around 70% in the same time.

• Both benchmark OIL prices (US WTI & BRENT) have gained around 3% in the last week, following a gain of around 4% in the previous week. The US DOLLAR strengthened to a 7-week high against a basket of other currencies at the weekend on the Federal Reserve’s cautious and patient approach to cutting interest rates, contrasting with a more dovish stance in other countries. Lower interest rates could support oil prices, which have slumped this year due to sluggish global demand. A cut in US interest rates would make borrowing costs cheaper in the US (the world’s largest economy), thus increasing interest in oil as they increase their own production. In the week ahead, oil prices are also likely to remain supported by rising geopolitical risk premiums.

• In the EUROZONE region, FRANCE, ITALY & SPAIN will release preliminary June inflation data on Friday. The data will determine the direction of the Eurozone reports the following week, it is important for traders to try to gauge how many times the EUROPEAN CENTRAL BANK (ECB) could potentially cut interest rates this year. As noted, the ECB cut interest rates on June 6, but the still strong trends in inflation and wage growth cast doubt on further cuts. Investors expect one more cut with about 64% chance of happening by the end of the year, down from almost 80% before the June ECB meeting. Economic indicator surprises will worsen investors’ mood as they are grappling with the uncertainty of the political situation ahead of French President Emmanuel Macron holding France’s first round of elections on June 30.

• CHINA & EUROPEAN UNION have agreed to start talks on a plan to impose tariffs on Chinese-made electric vehicles (EVs) imported into the European market. Earlier this month Brussels proposed a hefty import duty of up to 38.1% on Chinese electric vehicles imported into the European region, in order to end their excessive subsidies; taking effect on July 4 before being fully imposed in November. The European Commission’s June 12 announcement follows the United States’ move to raise tariffs on Chinese cars in May and opens a new front in the West’s trade war with China. The Chinese government has signaled possible retaliatory measures through state media comments and interviews with industry figures.

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