Last week review:

A number of US employment data were the focus of attention for market participants last week. The Job Openings & Labor Turnover Survey (JOLTs) which measures labor demand, came in at 8.8 million in July, below expectations of 9.46 million. The JOLTs figure from the US Department of Labor has fallen for 3 consecutive months, signaling that pressure on the labor market is fading. The ADP National Employment report showed new private sector jobs added by 177k in August, missing the prediction of 195k, and clearly lower than July’s 371k. Speaking of the third labor data, US Nonfarm Payrolls, the US economy created 187,000 jobs in August, up from 157,000 in the previous month, beating economists’ forecast of 170,000. Average hourly earnings slowed to 0.2% in August from 0.4% previously, slower than economists’ forecast of 0.3% due to an increase in labor supply (or participation rate); at the same time pushing the Unemployment Rate (Aug.) unexpectedly higher to 3.8% from 3.5% in July. Conference Board (CB) US Consumer Confidence also fell to 106.1 in August from 114 in July, missing economists’ forecasts of a reading of 116.

The US Commerce Department reported that the Personal Consumption Expenditures (PCE) price index, which is the Federal Reserve’s favorite inflation benchmark, rose 3.3% yoy in July, in line with expectations. While the Core PCE price index (which excludes volatile food & energy prices) also rose as predicted at 4.2% yoy in the same month. On the other hand, Consumer Spending rose 0.8% mom in July, the fastest growth in 6 months and implying resilient consumer spending power. Investors/traders’ expectation that the Fed will hold rates at its September meeting remains at 93% probability, as captured by the CME Group FedWatch tool. Investors believe that the Fed will always refer to economic data in making this interest rate decision. While the data that has been released is quite in line with market expectations, thus aligning with the purpose of the interest rate hike trend that has been carried out since 2022. To top it all off, the US 2Q23 GDP data was also revised to 2.1% yoy, slower than the initial estimate at around 2.4%. The US stock market closed August with a total monthly decline of 1.8% for the S&P500, 2.4% for the Dow, and 2.2% for the Nasdaq. The 10-year US Treasury yield automatically reacted by flattening to 4.09% and provided an opportunity for Tech sector megacap stocks to  take the stage. Bank giant UBS is quite confident in the S&P500’s ability to reach the 4700 level by June 2024, compared to its 2023 year-end target of around 4500. According to UBS, stock growth in 2024 could be higher as profits improve and the market begins to anticipate the prospect of interest rate cuts by the Fed if inflation continues to move towards the 2% target level desired by the US central bank. UBS also added that it is possible that the S&P500 will be able to reach 5200, if artificial intelligence (AI) really proves to be a game-changer next year.

What about Asia & Europe? Consumer Confidence outlook in Japan, Germany, France, and Eurozone are still relatively in the pessimistic area in seeing the business outlook going forward. Germany reported Retail Sales in July fell on a monthly and annual basis, unable to meet expectations and clearly showing a downward trend compared to the previous month. Meanwhile, the unemployment rate of Europe’s largest economy was recorded at 5.7% in August, in line with expectations that the level had increased from the previous month at 5.6%. A total of 18,000 new unemployed people emerged in August, much higher than only 1,000 in the previous month. The Eurozone gave a preliminary estimate of the August Inflation rate at 5.3% yoy, above expectations of 5.1%; they also released their July Unemployment Rate unchanged at 6.4%. Even Japan released their Unemployment Rate expanded to 2.7% in July, from 2.5% in the previous month. South Korea released a number of economic data that fell into the negative growth zone including: Industrial Production and Retail Sales both for July; fortunately there was still the Services sector that released positive numbers as reported in Service Sector Output (July) which beat expectations of stagnating at 0% by actually growing by 0.4%. Meanwhile, Japan’s Industrial Production also grew negatively by minus 2.0% mom in July; clearly plummeting compared to the previous month which still recorded positive growth of 2.4%. On one hand, Japan’s Retail Sales for July looked more vibrant as it rose to 6.8% (above forecast & previous month).

China tries everything to stimulate its stock market. Shares of Chinese companies listed on Wall Street enjoyed a rally of over 2% as China cut the stamp duty on stock trading (in addition to softening margin requirements) effective last Monday. China released Manufacturing PMI data (Aug.) which looks increasingly vibrant at 49.7, although not yet crossing into expansionary territory but the reading has exceeded expectations & last month’s position at 49.3. Unfortunately China’s Non Manufacturing PMI retreated to 51.0 (missing expectations and lower than the previous month); bringing the Chinese Composite PMI up just 0.2 points to 51.3 in August. Although seemingly mini, the Manufacturing PMI growth also added positive sentiment to energy commodity prices, assuming that demand from China will pick up soon. WTI crude oil prices surged 7% last week, closing at USD 86.5/barrel, initially in reaction to three consecutive weeks of falling US oil inventories and expectations that the Saudi production cut of one million barrels per day will enter its fourth month in October. The Idalia tropical agency in Florida also added an upward push to West Texas Intermediate (WTI) oil prices due to production disruptions. Speaking of other commodities, Gold approached a 1-month high last Friday, consolidating a weekly gain of 1% after the US released a batch of labor data for the month of August; where the Unemployment Rate rose to an 18-month high, implying the Fed may not need to raise interest rates further (where they still have 3 opportunities in the rest of the year at the FOMC Meetings scheduled for September 20, November 1, and December 13).

Domestically, Indonesia published the August Inflation rate at 3.27%, below the prediction of 3.33%, but indeed higher than the previous month at 3.08%. Meanwhile, Indonesia had no issues with the Manufacturing PMI (Aug.), which proved to be more expansionary at 53.9. Foreign investment in Indonesia’s stock market has been in a net buy position of IDR 12.43 trillion since the beginning of the year, although the monthly position turned out to be a net sell of IDR 1.14 trillion. The Rupiah exchange rate managed to close last week at its strongest level in almost 2 months at IDR 15,235/USD, and there is still potential for USD/IDR to continue consolidation until around IDR 15,180.

This week’s outlook:

After last Friday’s US labor report further strengthened expectations that the Federal Reserve will be able to hold interest rates unchanged at this month’s FOMC Meeting, the economic calendar will be lighter with a shorter trading week due to the US holiday. As for Indonesia, the month of September opens with the arrival of a number of ASEAN Summit delegates to Jakarta who will fill the main activities on September 4-7. Entering September, stocks posted strong weekly gains last week, with the JCI testing the 7000 mark for the first time this year. Data from China may add to concerns over the outlook for the world’s number two economy; while on the commodities front supply concerns are likely to remain supportive of oil prices.

On Wednesday, the Institute for Supply Management will release its August service sector activity data, with economists expecting it to weaken slightly. On the same day the Fed will publish its Beige Book, a survey of economic activity in the bank’s 12 districts. Investors will also get the chance to hear from several Fed speakers during the week. Investors now see a 94% chance the US central bank will keep rates on hold at 5.25%-5.5% at its September 19-20 meeting, according to’s Fed rate monitor tool.

China’s economic data this week is likely to indicate that the economic recovery in the world’s second-largest economy remains fragile amid weak demand in key export markets and the worsening domestic property crisis adding pressure to growth. The Caixin services PMI for August will be released on Tuesday and is expected to show expansion in the services sector slowed slightly last month. Trade data on Thursday is expected to show exports and imports contracted again in August on a year-on year basis, albeit at a slower pace than in July. Market observers will also be watching August CPI data on Saturday with consumer prices expected to increase after slipping into deflationary territory in July. Chinese authorities have launched a series of policy measures aimed at reviving the weakening economy, but many analysts see little chance for more drastic stimulus amid concerns over rising debt risks.

Oil prices surged to the highest level in more than seven months on Friday, snapping a two-week run of declines on concerns over the tight supply outlook. For the past week, Brent rose about 4.8%, the biggest one-week gain since late July. WTI Crude rallied 7.2%, the biggest weekly surge since March. Saudi Arabia is expected to extend voluntary oil production cuts of 1 million barrels per day through October, extending supply curbs designed by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, to support prices. The demand outlook in the US remains strong, while commercial crude inventories declined in five of the last six weeks according to data from the US Energy Information Administration.

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