Last week review:

FOMC MEETING: The Federal Reserve kept interest rates unchanged at 5.25%-5.50%, indicating that it is still leaning towards a rate cut after a string of US economic data; although the Fed also raised red flags on the recent disappointing PCE price index reading. On Wall Street, each of the major indexes closed April with the first monthly decline since October; while the JCI fell 1.58% so far this April, where foreigners recorded a net sell of IDR18.3 trillion (all market) worth of stocks on the Indonesia Stock Exchange (IDX), although on a YTD basis foreign still recorded a net buy of stocks with IDR7.95 trillion remaining.

US LABOR DATA: Initially, data from ADP Employment Change showed employment in the US private sector increased more than expected in April, whereas the previous month’s data was revised higher. Meanwhile, a separate report from the Bureau of Labor Statistics on JOLTs (Job Openings and Labor Turnover Survey) showed job openings in the US fell to a three-year low in March, an indication of a shrinking labor pool that could potentially help the Fed in its fight against Inflation. Other data from the Institute for Supply Management showed continued sluggishness in the US manufacturing sector, which contracted in April amid falling orders after having expanded the previous month. The latest Initial Jobless Claims explained that the number of Americans filing unemployment claims in the latest week remained stable at 208k as well as the previous week, while in fact it was lower than the forecast of 212k, so the labor market is still considered quite tight. The market responded to the FOMC Meeting decision and the above economic indicators mixed: Bank of America maintained their view that the first rate cut will occur as early as December on the premise that Inflation will still be high and difficult to fall. Goldman Sachs remains convinced that there will be two rate cuts this year, while Macquarie seems to be more pessimistic about it although they still factor in a possible pivot this year. It was Friday’s Nonfarm Payroll data that gave confidence that the labor market is getting balanced and Morgan Stanley still expects 3 rate cuts this year. The US economy added jobs at a slower pace in April, adding only 175,000 jobs last month, compared to a revised 315,000 in March. The Unemployment Rate also rose to 3.9% in April, from 3.8% the previous month, but was still the 27th consecutive month below 4%. Average hourly wage growth fell to 0.2% on the month. Finally for the week, Wall Street was safely in positive territory with the S&P 500 up 0.55%, the Nasdaq surging 1.43%, and the Dow gaining 1.14%. The US Treasury yield also retreated to its lowest point in a month; as did the Dollar index.

COMPANY FINANCIAL REPORTS also helped overall market sentiment; of the 397 S&P 500 companies that have reported earnings as of Friday morning, 76.8% have exceeded analysts’ expectations, compared to a 67% rate since 1997 and 79% over the past four quarters; according to LSEG data.

INDONESIA: recorded April CPI at 3.0% yoy, lower than the 3.06% forecast and the previous month’s 3.05%; although on a monthly basis slightly higher than expected due to high transportation costs during the Lebaran homecoming period. Indonesia also recorded a declining PMI performance in the manufacturing sector although it still remained in expansionary territory. For the past week, JCI had to slip -0.29% due to capital outflow of foreign funds amounting to IDR 5.73 trillion (all markets), leaving YTD position to only IDR 5.35 trillion. The 10-year SBN yield briefly touched a high of 7.33%, a figure that has not been seen since Oct last year, although it eventually softened to below the psychological 7.0% level at last Friday’s close along with a “strengthening” Rupiah exchange rate of 1.34% to the IDR 16033/USD area.

This week’s outlook:

Market participants will focus on several THE FED PRESIDENT’S PIDATOS scheduled this week after the US central bank last week acknowledged the lack of recent progress in their handling of inflation, although Chairman Jerome Powell said he still believes that interest rates will be able to fall this year. New York Federal Reserve President John Williams and Richmond Federal Reserve President Thomas Barkin are scheduled to speak on Monday, followed by Minneapolis Federal Reserve President Neel Kashkari a day later. Chicago Federal Reserve President Austan Goolsbee and Federal Reserve Governor Michelle Bowman will make further appearances later in the week. The Consumer Confidence data on Friday will provide fresh insights into inflation expectations and the economic outlook. The weekly Initial Jobless Claims report is scheduled for Thursday as usual.

The first quarter FINANCIAL REPORT season is nearing its final stages and there are still several large companies scheduled to report their performance in this week including Walt Disney, Wynn Resorts, and Akamai Technologies. Small capitalization stocks have been somewhat laggards of the overall market gains this year as the prospect of the Fed keeping interest rates high for a longer period of time has clouded the outlook for these smaller companies, which depend more on debt financing and consumer spending. However, it is possible that the outlook for small-caps could improve after last Friday’s Nonfarm Payroll report eased concerns that interest rates will remain elevated throughout this year.

Investors will be watching the BANK OF ENGLAND’s interest rate statement on Thursday for fresh signs that the bank intends to cut interest rates in the coming months as Bank of England officials have previously indicated. Recent economic data has provided mixed views on price pressures in the UK economy, prompting market participants to delay expectations of a first interest rate cut to September, from June in its initial forecast. The Bank of England will also update its quarterly economic projections; while their Q1 GDP is forecast to improve to 0.4% qoq, from a recessionary -0.3% in the previous quarter.

COMMODITIES: OIL prices suffered their biggest weekly loss in 3 months last week, with BRENT down more than 7%, while US WTI fell 6.8%. Traders are concerned that higher for longer interest rates will dampen economic growth in the US, the world’s number one oil consumer. The geopolitical risk premium from the Israel-Hamas war has also faded as both sides consider a temporary ceasefire and talks with international mediators. Traders are also monitoring whether the drop in oil prices, largely caused by a surge in US oil stockpiles, will still not stop the US government from replenishing its strategic reserves.

CHINA: China’s Trade Balance data and Export-Import position are the focus of market participants who expect their economy to start improving with positive growth in their Export-Import. This weekend will also be awaited for China’s Inflation figures which are expected to move away from potential deflation.

INDONESIA: will kick off the week with Q1 GDP report which is predicted at 5.0% yoy, slightly down from 5.04% in the previous quarter. On a quarterly basis, Q1 growth is expected to be slightly lower at -0.89% qoq compared to last quarter’s growth of 0.45%. Following Wednesday, it is the Foreign Exchange Reserves (Apr) data that will dominate the attention of market participants before entering the Ascension of Jesus long weekend holiday.

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