Last week review:
Before the Eid al-Fitr holiday, Indonesian financial markets closed last week after the Trade Balance (Mar.) surplus data fell to USD 2.91 billion; the first decline in 29 months due to weak commodity prices and global demand, causing Exports and Imports to shrink 11.33% YoY and 6.26% YoY respectively. Indonesia’s external debt position in February fell to USD 400.1 billion, from USD 404.6 billion in January. In the short trading week last week, the BI RDG had also set the BI7DRR to be kept at 5.75%. Market participants had also witnessed that the revival of the world’s second-largest economy, China, began to appear as the GDP for the first quarter of 2020 managed to grow above expectations to 4.5% YoY and 2.2% QoQ; supported by Industrial Production (Mar.) which managed to strengthen to 3.9% YoY from 2.4% the previous month. It turned out that their Retail Sales (Mar.) figure also rose above estimates; while the Unemployment Rate (Mar.) started to decrease. The People’s Bank of China also kept the lending rate at 3.65% to boost economic growth further. In contrast, the unemployment rate in the UK has tripled even though the wage level of workers has not been reduced, which is in line with their central bank’s goal to suppress people’s purchasing power and is finally expected to cool down their Inflation rate (Mar.) which is still insistent at the double-digit level of 10.1% YoY. UK Core Inflation (Mar.) has also not been able to come down from the level of 6.2% YoY (the same as the position in the previous month). The magnitude of the economic pressure in continental Europe has been foreseen by Germany which is still very pessimistic about the business sentiment rolling in this April, and in the Eurozone in general; reflected by the Eurozone Inflation rate (Mar.) which managed to fall as expected to 6.9% YoY (from 8.5% the previous month) and the German PPI figure (Mar.) which successfully slid far to 7.5% YoY (from 15.8% the previous month). Interestingly, despite these signs of economic slowdown, Eurozone Trade Balance (Feb.) managed to print a significant surplus of EUR 4.6bn (compared to the forecast & previous period which was still in deficit), supported by the Composite PMI of Germany, UK, and Eurozone which became more expansionary thanks to growth in the services sector. Considering the above, a 50bps rate hike seems to remain the favoured option for the European Central Bank next week. On the other hand, the US market expects the Federal Reserve to immediately put the brakes on the pace of interest rate hikes as symptoms of a soft landing are increasingly evident; as evidenced by employment data such as Initial Jobless Claims which was released above forecasts & expectations, reporting the unemployment rate at 245k. It is no surprise that the Philadelphia Fed Manufacturing Index also indicated a deterioration in Philadelphia’s general business conditions this April; although nationally the S&P Global Composite PMI (Apr.) showed that conditions are still relatively expansionary across the US with a reading of 53.5 (vs. forecast 52.8 and previous period 52.3)
This week’s outlook:
US economic data will shed more light on the direction of interest rate policy, which the market is already expecting a 25bps hike at next month’s FOMC Meeting. At the same time, market participants also expect that the US central bank will be able to cut interest rates later this year to reduce interest cost pressures on businesses. US macroeconomic data that have been released this week during the Idul Fitri holiday in Indonesia are:: The US Consumer Confidence Index (Apr.) which is a leading indicator of overall economic activity, came in lower than forecast & previous reading of 104, at 101.3. On the other hand, the pessimistic view of the economy was offset by Building Permits and New Home Sales (Mar.) which turned out to show an above expected addition. Other important economic data from the US that are awaited are Durable Goods Orders (Mar.) & Trade Balance (Mar.) on Wednesday; followed by 1st quarter/2023 GDP, Initial Jobless Claims, and monthly Pending & New Home Sales (Mar.) reports due next Thursday; then Core PCE Price index, Personal Spending (Mar.), Chicago PMI (Apr.), Michigan Consumer Expectations & Sentiment (Apr.) on Friday. From Asia, Tokyo’s Inflation rate (Apr.) both annual and monthly, Industrial Production (Mar.), and Retail Sales (Mar.) will be under the spotlight ahead of the new Bank of Japan Governor Kazuo Ueda making his interest rate decision at his first policy meeting. Meanwhile, not much economic data is awaited from Indonesia, aside from an optimistic view from the BI Governor who predicted that Indonesia’s economic growth in 2023 could reach 5.3%, on the back of rising domestic consumption and positive export performance. Performance reports of mega-cap tech companies will test the possibility of a rally this year. Market participants will also keep an eye on the earnings reports of European banks in the aftermath of last month’s banking crisis. On the other hand, Eurozone macroeconomic reports will aid the ECB’s decision-making; among the releases are those from Europe’s strongest economies: German Ifo Business Climate Index (Apr) at 93.6, which is still lower than the forecast of 94 but at least slightly more optimistic than the previous period at 93.2. Continuing from Germany, further data that will follow are Consumer Climate for May view, Unemployment Change (Apr.), 1Q23 GDP, and CPI (Apr.). The UK and Eurozone are also contributing data, on UK Labor Productivity 4Q22; Euro Zone GDP 1Q23 (Fri.), Business Climate, and Consumer Confidence – Expectations (Apr.) The ECB is expected to maintain its upward trend in interest rates, setting at least 25bps at the May central bank meeting.
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