Last week review:
Federal Reserve Chairman Jerome Powell’s recent comments that interest rate hikes will continue this summer as they move to curb US Inflation (which is still far from their target of 2%); dominated sentiment last week and caused Wall Street’s major indexes to lose their winning week. The Nasdaq finally stalled from 8 consecutive weeks of gains, the longest since March 2019; while the S&P500 was also unable to continue its 5 consecutive weeks of rally, the longest since November 2021. Equally, JCI also closed last week at 2-week lows, falling back below MA10 & MA20 Support accompanied by weekly foreign net sell of IDR 1 trillion; bringing the 1-month total of Foreign Net Sell to IDR 2 trillion. The Fed’s decision has the potential to further lead the global economy into a widespread recession; especially in an already overbought market, making investors to take profit-taking moves. Financial markets have priced in a 74.4% probability of a 25 bps Fed Fund Rate hike at the upcoming FOMC Meeting in July, as reported by the CME Group FedWatch Tool. US Initial Jobless Claims hit a 20-month high and continued to strengthen for the 3rd consecutive week; while the Conference Board Leading Economic Index fell again in the 14th month, making it evident that the Fed’s efforts to curb economic growth have paid off. The revised US S&P Global Composite PMI (June) again stated that the US Manufacturing sector is still struggling on the path of contraction, while the Services sector began to strengthen above expectations in the expansion area. Speaking of other countries’ interest rate trends, the Bank of Japan maintained its ultra loose monetary policy, where their CPI & Core CPI (May) was reported at a relative 3.2%. China’s central bank cut their benchmark rate by another 10 bps to 3.55% to further stimulate their economy, but on the other hand also emphasized that China needs more stimulus to boost their slow economic recovery after the Covid pandemic. Meanwhile, the European Central Bank chose to raise its benchmark interest rate by a further 25 basis points. A surprise came from the Bank of England who implemented a higher than expected interest rate hike of 50 bps to 5% (from 4.75% prediction) in order to tame the UK Inflation which has been quite tough for the past two months at 8.7%. Domestically, Bank Indonesia’s Board of Governors Meeting again held BI7DRR at 5.75%, with the composition of Deposit Rate (June) at 5% and Lending Rate (June) at 6.5%. Energy stocks became the overall market ballast, triggered by the fall in global oil prices as weak demand from China as the world’s largest crude oil importer resurfaced. CNPC Economics & Technology Research Institute expects Crude Oil demand from China to grow only 3.5% or 740 million tons by 2023, down from the previous forecast of 5.1%.
This week’s outlook:
This week will again be a short trading week for Indonesian investors as the government declared the Idul Adha holiday & collective leave on 28-30 June, but other global market participants will be quite busy paying attention to several issues. Investors will get an update on the direction of monetary policy from the release of US Personal Consumption Expenditures price index data on Friday, which is the Federal Reserve’s most favored Inflation-related indicator. So far over the past 12 months up to April, the PCE price index is still running above the Fed’s target of 2%. However, prior to that, the Consumer Confidence report is also scheduled to come out on Tuesday. The US Consumer Confidence index is expected to be higher than May, which was at a 6- month low. The Eurozone is scheduled to release preliminary Inflation data for June on next Friday. ECB President Christine Lagarde is likely to stick with a hawkish tone as long as the Inflation rate is still not tamed to the 2% target level. Market participants are now pricing in hikes in July & October which would take the European benchmark interest rate to 4%. Investors will get a chance to hear comments from the world’s top central bankers who will gather at the ECB’s annual forum in Portugal on Wednesday; where Inflation talk is sure to be a key topic. From the Asia, China is scheduled to release its PMI (June) report on Friday amid worldwide concerns that the economic improvement from them is losing momentum. Even some global investment banks have cut their 2023 GDP projections for China after its lackluster performance. The geopolitical tension factor is back in Russia and adding to the dynamics of the global investor world, where they are monitoring the potential impact to safe-haven assets including US Treasuries and commodity prices. There was a movement of Russian mercenaries towards Moscow after they took over the city of Rostov in a believed attempt to destabilize the leadership of President Vladimir Putin. Further developments on this matter will be of interest to the public over the next few days; as to whether the risk of a larger coup will be mitigated.
Download full report HERE.
