Summary:

Last Week Review

• US GDP & INFLATION DATA MANAGED TO SAVE THE DJIA INDEX BUT FAILED TO KEEP TECH STOCKS FROM FURTHER SLIDE. Over the past week, DJIA managed to gain 0.75%, while S&P 500 plunged 0.82% and NASDAQ slumped 2.08%. The US GDP data which stated that the US economy strengthened above expectations in the 2nd quarter of this year by 2.8% qoq (double the weak 1.4% growth in the previous quarter), erased concerns of the US economy going into recession; amidst the handling of Inflation which seems to be safely under control and in-line with expectations.

• The soft-landing view is increasingly confirmed so that the projection of a rate cut in Sept is increasingly feasible, although there are voices that are a bit too dovish saying the rate cut could begin as soon as the FOMC Meeting in late July (unlikely). Earnings season was also responsible for shaping the direction of trading last week, where concerns around earnings of big caps such as Tesla and Apple losing important market share in China haunted their revenue capabilities going forward. Also contributing to the negative sentiment related to the Technology sector, the crash of Microsoft’s operating system due to a software update by Crowdstrike (a cyber security company) caused problematic glitches in the operations of airlines, banks, and healthcare companies around the world, not to mention at least airlines in Indonesia.

• On the one hand, the highly dynamic US political map has created market turmoil where President Joe Biden finally decided to withdraw from the 2024 US presidential election and handed over the nomination to VP Kamala Harris, who still has to get unanimous approval from the Democratic party at their convention in August.

• CHINA unexpectedly cut their interest rates back by 0.1% amid ambitious efforts to improve their economy after disappointing 2Q GDP data came out; although more tangible stimulus measures are still awaited by market participants. China plays a big role in global financial and commodity markets, as seen from the drop in OIL prices for 3 consecutive weeks due to sluggish demand from China as the world’s largest oil importer.

• As a result last week, the benchmark Brent price lost 1.8% while WTI slumped 3.7%; as well as hopes for the Gaza War ceasefire negotiations that have been in the works for the past few weeks. However, Israel wants changes in the Gaza ceasefire plan and the release of hostages by Hamas, which complicates a deal to stop the 9-month war that has devastated the region. On the demand side, data released earlier this month showing that China’s total fuel oil imports fell 11% in the first half of 2024 has raised concerns about the overall demand outlook of China, the world’s largest crude oil importer.

• On the other hand, US energy companies last week added the number of oil and natural gas drilling sites for the second week in a row, increasing the monthly number by the most since November 2022, energy services company Baker Hughes said in a report.

• There will be a lot of buzz this week as the Federal Reserve, Bank of England and Bank of Japan hold policy meetings on interest rates; also in the spotlight will be the US employment report on Friday and the earnings of the remaining “Magnificent Seven” Tech companies that have yet to release their results. Here’s a look at what to expect in the markets over the next week:

• With markets currently pricing in an 88% chance of a rate cut in September amid signs of falling Inflation and rising unemployment rates, the policy statement by Fed Chair Jerome Powell this week will be a key highlight. It is likely that interest rates will still be held at 5.25% – 5.50% at the July 30-31 FOMC MEETING, despite the “slightly too dovish” tone of one Fed official stating that a rate cut could happen as soon as July.

• The Fed’s statement on Wednesday will put the NONFARM PAYROLLS report due on Friday, under even closer scrutiny as investors try to gauge whether recent signs of cooling down in the labor market may continue in July. Economists expect the US economy to have created 177,000 jobs in July, supposedly down from 206,000 in the previous month. The unemployment rate, which has risen in the past 3 months, is expected to hold steady at 4.1%. Ahead of Friday’s report, the US will release JOLTS JOB OPENINGS data on Tuesday.

This Week’s Outlook

• FINANCIAL REPORTS of major Tech companies will continue in the coming days; markets anticipate disappointing results below expectations which could potentially rattle an already jittery market amid fears of overvalued stock valuations.

• The BANK OF ENGLAND (BoE) meets on Thursday and investors are divided on whether policymakers will decide on the first interest rate cut since 2020. The level of uncertainty is higher than usual ahead of the meeting as central bank officials have not spoken publicly for more than 2 months due to the regulatory environment ahead of the UK general election on July 4. Investors are still wondering whether the recent higher-than-expected inflation is enough to prevent the BoE from lowering interest rates from a 16- year high of 5.25%; last month the BoE’s Monetary Policy Committee voted 7-2 to keep rates on hold.

• BANK OF JAPAN (BOJ) plans to set its latest policy at Wednesday’s meeting and speculation regarding the prospect of a rate hike has intensified after high-profile politicians, including the prime minister, hinted at the need for policy normalization in the near future. The impact of the weak YEN on household and business spending is likely to turn the exchange rate into a key issue at the ruling Democratic Liberal Party’s leadership convention in September. The fact that the currency has recovered a staggering 10 yen/USD from 3-decade lows earlier in the month does not deter some from predicting a rate hike by the end of July

Download full report HERE.