Last Week Review

THE REAL ECONOMIC SLOWING SEEN IN THE US, sending all three major US indices posting strong gains throughout the month of May: The S&P500 jumped 4.8%, the NASDAQ skyrocketed 6.9%, and the DJIA gained 2.4%. For the week, however, the S&P500 slipped 0.5%, the NASDAQ lost 1.1%, and the DJIA depreciated 0.9%. The opposite is true for the JCI: throughout the month of May we fell by almost 2.6% and the past week was the biggest negative of 2.87%. The sluggish condition of JCI was triggered by foreign funds consistently fleeing Indonesia: Foreign Net Sell 1W = IDR 4.81 trillion, 1M = IDR 13.85 trillion. Amidst comments from US central bank officials that are still thick with hawkish narratives, US markets are trying to be optimistic that at least an interest rate hike this year can be ruled out. The supporting data in the form of revised US GDP 1Q which was even lower than the initial estimate of 1.6%, was released at 1.3% qoq. The apparent economic slowdown from the previous quarter’s 3.4% GDP more or less supports the view that a rate cut could be factored in September and there is a possibility of a second pivot in December. The Fed’s favorite Inflation benchmark data, the PCE price index indicator stated that US Inflation was in-line with expectations, but still stagnant at 2.7% yoy in April. Similarly, the Core Inflation measure = Core PCE Price Index (Apr) was released as predicted at 2.8% yoy, the same condition as the previous period. The Federal Reserve had stated that they need to see meaningful slack in the labor sector; Initial Jobless Claims for the latest week rose by 3k to 219k. While Consumer Confidence is optimistic of strengthening, Personal Spending which underpins economic growth appears to have weakened to a 3-month low in April; similarly, home sales are on pace to drop to a 20-month low. In addition, the all-important PMI Indicator CHICAGO PMI fell surprisingly to its lowest level since the Covid-era June 2020.

EUROPEAN & ASIAN MARKETS: The STOXX600 European Index raced up 2.6% in May despite edging down 0.5% a week ago in a series of consecutive 2-week losses. EUROPEAN CENTRAL BANK appears to be more optimistic than the US central bank in terms of prospects for a June rate cut. German Inflation (May) looks stagnant but manageable at 2.4% and EUROZONE Inflation at 2.6% yoy (May); consumer & business climate outlook is also expected to remain unstable in the next 6 months. Unemployment Rate showed slight improvement to 6.4% in April from 6.5%. On the Asian continent, the Chinese Composite PMI (May) seems to have not managed to show any strengthening as the index is trying to stay in expansionary territory as much as possible with help from the services sector, while the manufacturing side has started to slip into contractionary territory. The IMF raised its projection for CHINA’s economic growth this year to 5.0%, from 4.6% previously; in expectation of more stimulus packages launched by the Chinese government.

BANK INDONESIA recorded foreign capital flowing into Indonesian financial markets this week. Based on transaction data from May 27-30, 2024, non-residents recorded a net purchase of IDR 4.75 trillion. Foreign capital flows in the fifth week of May 2024, based on transaction data from May 27-30, 2024, non-residents in the domestic financial market recorded net purchases of IDR 4.75 trillion. This consists of net purchases of IDR 3.31 trillion in the Government Securities (SBN) market, net purchases of IDR 6.19 trillion in Bank Indonesia Rupiah Securities (SRBI), and net sales of IDR 4.75 trillion in the stock market. As for 2024, based on settlement data until May 30, 2024, foreigners recorded a net purchase of IDR 42.72 trillion in the domestic financial market. Non-residents recorded a net sell of IDR 34.72 trillion in the SBN market, a net sell of IDR 4.26 trillion in the stock market, and a net buy of IDR 86.07 trillion in SRBI

This Week’s Ooutlook

The tightly monitored NONFARM PAYROLLS report on Friday is expected to show that the US labor market remained strong again in May. Economists expect that 185,000 jobs were added, slightly up from the previous month’s 175,000. Investors are somewhat concerned that an overly strong economy could prevent the US Federal Reserve from lowering interest rates this year, or even necessitate a rate hike. The employment report may prove that the economy has slowed down.

EUROPEAN CENTRAL BANK will almost certainly be the first major central bank to cut rates this year on Thursday (After the Bank of Canada which also had a potential 25bps pivot on Wednesday). With a 25 basis point rate cut already promised by policymakers, market watchers will be focusing on what ECB President Christine Lagarde has to say about what comes next. Inflation in the bloc’s dominant service sector remains high and its economy is recovering faster than expected, while closely watched wage growth figures picked up in the last quarter, making the outlook beyond June less certain. Markets still expect the ECB to cut rates several times this year compared to the Fed and Bank of England. The market now expects 2 cuts and less than 50% chance of a third – compared to an initial projection of 3 at  the last ECB meeting and at least 5 at the start of the year.

STOCK MARKET DIRECTION: Although all three major US stock indexes posted losses last week, they still ended the month higher, with the S&P 500 rising about 4.8%, the Nasdaq surging 6.9%, and the DJIA gaining 2.4%. While it’s been a good year for the major US stock indices, bear in mind that the Dow Jones Transportation Average has fallen about 5% so far this year and some market participants say that the challenges facing the 20-stock transportation index – which includes rail carriers, airlines, package delivery companies, and trucking companies – could signal economic weakness or contain the potential for limited market strength. As noted, the Dow Transportation index is a barometer for future economic activity, which analysts see as possibly indicating that while a recession is not imminent, there may be an economic slowdown underway in the US.

ECONOMIC INDICATORS: A number of PMI data from Asia & Europe will grab the attention of market participants, including INFLATION data from INDONESIA & SOUTH KOREA. Some 1Q GDP data will also be published by South Korea & EUROZONE. And last but not least is CHINA’S TRADE BALANCE data which highlights their Export & Import growth.

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