Last week review:
The US government and parliament’s decision on the US debt ceiling was the focus of global market participants’ attention last week, whether they will manage to reach an agreement before a default occurs on June 1 that risks a crippling global financial sector. A number of economic data on employment was also a highlight as it would determine the future direction of the Federal Reserve’s monetary policy. The latest progress could finally bring the Dow Jones last week to post a weekly win; the Nasdaq even closed at a 52-week high. The US Nonfarm Payrolls recorded employment growth of 339k, much higher than the forecast of 180k and still stronger than the previous period. However, the Unemployment Rate rose higher than expected to 3.7% (vs. forecast 3.5% & previous 3.4%); wage growth was allegedly weakening. However, with the above economic reports, analysts are still considering the possibility that the Fed will delay the rate hike at the upcoming FOMC Meeting on June 13 14. From the commodity, oil prices crept up on the back of speculation that OPEC+ will soon announce plans to cut production again; thereby expected to boost prices which are currently down 1.3% on a weekly basis. On the other hand, the world Gold price, which has been dethroned from USD 2000, posted a 1.3% gain last week on the back of potential economic shocks that were feared from the threat of a US debt default; although an employment report proved that the US economy is still quite strong. Meanwhile, technology stocks are in good favor following the positive sentiment on AI chip related stocks. From the Asia, China plays an important role for the key to the global economic recovery. Manufacturing PMI (May) still came out disappointing at 48.8 (into contractionary levels), bringing China’s overall Composite PMI (May) down to 52.9 (from 54.4 the previous month). Europe at least delivered some good news by successfully taming their Inflation rate, with German CPI (May) now resting at 6.1% (successfully easing from expectations & prior period around 7.2%); dragging down overall Eurozone CPI (May) to 6.1%, quite low compared to 6.3% forecast & 7% previous.
This week’s outlook:
The US is entering its quiet period tradition ahead of the upcoming June 13-14 FOMC Meeting, in which no more central bank officials will give comments on the monetary policy outlook. The mixed US employment report is an important benchmark for the Federal Reserve to decide whether the braking of the more than year long pace of interest rate hikes is warranted. The ISM Services PMI that will be released on Monday is expected to still indicate a solid rate of expansion, as opposed to the Manufacturing PMI announced in May, which signaled that contraction has occurred for 7 consecutive months. In fact, the Nasdaq has surged 33% YTD while investments in the S&P 500 have grown investors’ portfolios by 11.5% YTD ( currently at a 10- month high). However, the rising US stock market which is only underpinned by a few mega cap stocks (tech sector) raises concerns that this foundation is prone to collapse at any time upon hostile sentiments, such as the US central bank’s decision on FFR. On that note, Australia & Canada will also carry their interest rate policy meetings this week on the same issue, around the fight against Inflation & their interest rates. From the Eurozone, German will announce its Trade Balance, Factory Orders, & Industrial Production data for the second quarter of the year on Monday to see if there is any improvement in its economy which fell into recession in 1Q23. The ECB is also scheduled to publish consumer expectations survey data on Tuesday which will shed light on whether Inflation expectations are under control; and be the subject of ECB President Christine Lagarde’s awaited comments at the European Parliament’s economic & monetary committee meeting. On this week, investors will also receive the latest views from the World Bank & OECD regarding the global economy outlook. Last month, the World Bank warned of a crisis of economic slowdown; on the other hand the OECD raised its forecast for world economic growth to 2.6% this year and 2.9% in 2024 despite warning of a fragile overall outlook. From the domestic, after a short trading week last week, Indonesia will be closely monitoring the Inflation rate report (May) which is due out this Monday morning at an estimated 4.23%, down from the previous month’s 4.33%; while Foreign Exchange Reserves (May) will follow on Wednesday.
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