Summary:
Last Week Review
• GOOD BYE 2024, WELCOMING 2025 WITH HOPE, OPTIMISM & NEW STRATEGIES. JCI corrected 2.65% in 2024, amid bullish global equity markets. Last year the S&P surged 23.3% and the Nasdaq rose 28.7%. The S&P 500 even recorded a two-year surge of about 53.19%, marking the strongest consecutive annual performance for the index since 1997-1998. The US stock market rally has been driven by growth expectations around artificial intelligence/AI, expected interest rate cuts from the Federal Reserve, and a strong US economy; as well as the latest: possible deregulatory policies from the incoming Trump administration after he is sworn in on January 20. Not only in the US, the global MSCI index rallied nearly 16% in 2024. In Europe, the STOXX 600 index ended 2024 with a gain of 5.99%.
• FIXED INCOME & CURRENCY: The US TREASURY YIELD has risen by around 69 basis points last year, of which a spike of more than 74 bps occurred in Q4/2024. The widening interest rate differential has increased the attractiveness of the DOLLAR last year. The DOLLAR INDEX (DXY), which measures the greenback’s strength against 6 other major currencies, rose 6.6% in 2024 after surging 7.3% in Q4, the biggest quarterly gain since 1Q/2015. Closing 2024 on Tuesday, the single currency EURO fell 6.1% in the past year against the greenback after slumping 6.5% in Q4.
• COMMODITIES: OIL prices plunged about 3% in 2024, the second consecutive year of decline, as post-pandemic demand recovery is still stuck, China’s economy is still struggling towards growth, and the US and other non-OPEC producers are pumping more crude oil into a global market that seems over-supplied. US oil production rose 259,000 barrels per day to a record high of 13.46 million bpd in October, as demand surged to its strongest level since the pandemic. Production is expected to rise to a new record of 13.52 million bpd next year, the EIA said. The forecast is supported by the following thoughts: lower interest rate trend in 2025, US President-elect Donald Trump’s policies regarding global geopolitical conflicts, China’s manufacturing activity has increased for 3 consecutive months.
• INDONESIA starts 2025 with confusion & chaos regarding the implementation of the 12% VAT policy aka 1% increase which is finally only imposed on luxury goods classified under Sales Tax on Luxury Goods (PPnBM) as of December 31, 2024 such as private jets, yachts, luxury homes / residences above IDR 30 billion, and also luxury cars. While general goods consumed by the public the rate remains 11%. This is stated in the Minister of Finance Regulation (PMK) number 131 of 2024 which was stipulated by Sri Mulyani Indrawati on December 31, 2024.
• In overall, the first trading day of 2025 was still slow and quiet, although the JCI hit a positive note on the first trading day with a +1.18% rally driven by the Energy sector and Property sector. Rupiah was at IDR 16,185/USD. Foreign funds over the past week still recorded net sell of IDR 789.54bn (RG market). Indonesia’s inflation in Dec 2024 was recorded at 1.57% yoy, up 0.02% from Nov.
This Week’s Outlook
• This week will be a busy one with US labor data, Federal Reserve meeting minutes, and several Fed officials along with inflation data from the Eurozone and China. Meanwhile, US markets will remain closed on Thursday in honor of the late former President Jimmy Carter. Here is a look at what’s happening in the markets this week:
1. Friday’s US employment report/Nonfarm Payroll is expected to show that the US economy added 154,000 jobs in December, while the unemployment rate is expected to remain steady at 4.2%. But before Friday, investors will first get an update on JOLTs Job Openings on Tuesday, followed by data on private sector hiring ADP Nonfarm Employment Change, as well as the weekly report on jobless claims on Wednesday, which will be released a day early ahead of the National Day of Mourning on Thursday.
2. On Wednesday, the Fed will release the December FOMC MEETING minutes where they delivered their third consecutive 25 basis point rate cut. Investors will also get a chance to hear several statements from Fed officials during the week as speeches from Governors Cook and Waller on Monday and Wednesday, respectively, are likely highlighted. Richmond Fed President Thomas Barkin and Philadelphia Fed President Patrick Harker will also deliver remarks.
3. Equity markets slumped in late December and early January, after performing well in 2024. The outlook for a third consecutive stellar year depends in part on the strength of the economy, with labor market data among the most important readings on the health of the economy. The data could also help clarify the outlook for interest rates after the Federal Reserve last month rattled markets by shifting to a more cautious outlook for rate cuts as it raised its forecast for 2025 inflation. Investors are wary of the payrolls report revealing an overly strong economy, with a resurgence in inflation under the incoming Trump administration seen as one of the key risks to markets at the start of the year.
4. Expectations of additional rate cuts from the European Central Bank will be tested by the Eurozone’s December inflation data due on Tuesday. German and French inflation figures will be released on Monday. Meanwhile, China will release consumer and producer price inflation data on Thursday. The annual inflation rate was almost flat in December while China’s PPI was in contraction territory, indicating that the government’s stimulus measures are still not successful in boosting demand.
5. Oil prices ended higher last week as the demand outlook was boosted by cold weather in Europe and the US along with additional economic stimulus in China. As for last week Brent posted a weekly gain of 3.3%, while WTI crude oil futures posted a gain of 5%. Oil prices are likely to remain supported amid increased demand for heating oil after forecasts of cold weather in some regions. Last week’s data showing a decline in US crude inventories also supported prices. However, oil price gains are likely to be curbed by a stronger US Dollar on the back of expectations that the US economy will continue to outperform other countries globally this year and that US interest rates will remain relatively higher.
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