THREAT OF US STAGFLATION OFFSET BY STRONG S&P500 CORPORATE EARNINGS. The S&P 500 added 2.7% last week, supported by strong earnings reports from tech giants Microsoft and Alphabet (although Meta Platforms saw a sharp drop of over 10% in its share price following higher capex estimates), as well as the PCE PRICE INDEX report for March. Last week started with the S&P GLOBAL US COMPOSITE PMI which was sluggish in April on both the manufacturing and services activity fronts. This was followed by first quarter US GDP which fell below expectations, 1.6% qoq, slightly far below the 2.5% forecast. INFLATION data also came into focus last week in addition to the Q1 FINANCIAL REPORT Season. March’s core PERSONAL CONSUMPTION EXPENDITURES (PCE) PRICE INDEX inflation showed a monthly increase of 0.32% and an annualized increase of 2.8% (versus economists’ forecast of 2.6%). This led CITI economists to anticipate a Federal Reserve rate cut at the July-August meeting, with a total expected cut of 100 basis points this year. THE WORLD BANK noted that while activity data, particularly in the labor market, may have prompted the downturn in June, spending data was strong in March, with services strength increasingly concentrated in sectors such as healthcare. The World Bank also argues that with only a month left for the release of April Inflation data before the June 13 FOMC meeting, officials may have to wait until July to gain enough confidence that Inflation is slowing. Meanwhile, EVERCORE ISI economists pointed out that while the March Inflation figures were as expected, the forecasts for January and February were revised upwards. They forecast an increase in the number of Workers of +200k in April, with the Unemployment Rate falling to 3.7%, and Average Hourly Earnings growing by +0.3% on a monthly basis, or 4.1% on an annualized basis. Elsewhere, BANK OF AMERICA economists said that Friday’s data is indicative of strong demand rather than stagflation, so it will keep the Fed on hold (= rates higher for longer) in the near term. Especially when the weekly INITIAL JOBLESS CLAIMS topped it all off with jobless claims proving to be down, actual 207k compared to 214k forecast. On the one hand, it is true that there is strong demand in the property sector, as evidenced by the New Home Sales & Pending Home Sales data which increased in March. Key comments from USĀ  SECRETARY OF FINANCE JANET YELLEN also supported the market by saying that the disappointing first quarter US GDP figure above could be revised higher, thus suggesting the US economy is likely to be stronger than the initial GDP estimate suggests. The CME FEDWATCH TOOL now shows traders expect a rate cut to occur only in September, or in the fourth quarter.

COMMODITIES: OIL prices rose last week, with Brent having gained 2.5% so far, while WTI gained more than 1%; with US WTI last priced at USD 84.04/barrel, while the BRENT contract was at USD 89.46/barrel. Oil prices snapped a 2-week losing streak on fears of dwindling US supply and continued geopolitical unrest in the Middle East, amid the threat of a blockade of the Strait of Hormuz despite Iran not reacting to the latest alleged attack from Israel. Comments from Janet Yellen also helped, as the US Treasury Secretary said that last Thursday’s disappointing US Q1 GDP figure could possibly be revised higher once more is available.

Last week BANK INDONESIA’S BOARD OF GOVERNOR’S MEETING also added to the dynamics of the financial markets after unexpectedly raising the benchmark interest rate 25 bps to 6.25%, amidst their efforts to stabilize the RUPIAH exchange rate which was not budging above 16200/USD. Earlier in the week, the March TRADE BALANCE SURPLUS was reported for the 47th consecutive month at USD 4.47 billion (much higher than February at USD 830 million only), as the fall in Imports outweighed the weakening pace of Exports. From the stock market, over the past week Foreign Net Sell recorded a massive IDR3.17 trillion, bringing the monthly figure to a worrying IDR17.19 trillion net sell; eroding their YTD position to just IDR9.78 trillion (all markets).

This week’s outlook:

This week will be eventful, as investors will be watching for any indication that the Fed may still cut rates this year after officials wrap up their 2-day FOMC MEETING next Wednesday. Note that Federal Reserve Chairman Jerome Powell has often warned that the central bank needs to have enough confidence that inflation is heading towards its 2% target before realizing a rate cut. Especially when the Fed has historically cut key interest rates before Presidential elections and this year is expected to be the same, so a Fed rate cut is still quite feasible to happen in September as per the latest consensus.

The monthly NONFARM PAYROLLS DATA to be released on Friday should provide an update on the strength of the US labor market, where economists expect the US economy to have created 243k new jobs in April, slowing from 303k in March. The UNEMPLOYMENT RATE is also projected to stabilize at 3.8%. Prior to Friday, there is the ADP EMPLOYMENT CHANGE data to report on the private sector as well as the weekly JOLTs JOB OPENINGS and INITIAL JOBLESS CLAIMS job vacancy information which will reinforce the numbers in the employment sector.

The last two companies of the MAGNIFICENT SEVEN will direct market movements as market participants look forward to AMAZON and APPLE earnings reports on Thursday.

CHINA: market participants will focus on CHINA MANUFACTURING data for April, looking for signs of economic improvement as the world’s second largest economy picks up momentum following the release of stronger economic data last month. The Chinese government will release its PMI report on Tuesday, followed shortly by the Caixin/S&P Global Manufacturing PMI. Upbeat data will come as a relief to government officials who have been trying to shore up growth and boost investor sentiment. Global investment houses have become increasingly bullish on Chinese stocks, helping the blue-chip index climb above 10% from its February low. But Beijing has been feeling the pinch lately with its currency where the yuan has weakened significantly against the dollar, but strengthened against its major trading partners – an unfortunate indication for China’s export-dependent economy.

EUROZONE: will release Inflation and GDP data on Tuesday which is likely to reinforce market expectations of a EUROPEAN CENTRAL BANK rate cut in June. As noted, European inflation has fallen rapidly over the past year and the ECB is expected to cut rates in June, but the longer-term outlook remains bleak due to rising energy costs, high services inflation, and continuing geopolitical tensions that threaten to disrupt trade. Economists expect the bloc’s gross domestic product (GDP) to increase by just 0.2% in the first quarter on an annualized basis. Inflation growth is expected to stabilize with consumer prices expected to increase by 2.4% in April, the same as the previous month amid rising energy costs.

INDONESIA: will mainly look forward to April INFLATION data on Thursday after the May 1 Labor Day holiday, complementing Foreign Direct Investment and Nikkei Manufacturing PMI (Apr.) data.

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