Last Week Review

• The stock market ended the week at all-time highs, with traders looking past signals of a slowdown in the world’s largest economy to focus on prospects for Federal Reserve rate cuts.

• In a post-holiday session marked by thin volume, the S&P 500 notched its 34th record this year. Equities rebounded, following a series of twists and turns in the immediate aftermath of data showing US hiring moderated as the jobless rate hit the highest since 2021. Treasury yields tumbled. Swaps fully projected two Fed reductions in 2024 starting in November — and Wall Street bets have been building around a September rate cut. The S&P 500 topped 5,565. The Nasdaq 100 rose 1%. Meta Platforms Inc. jumped almost 6%. Macy’s Inc. surged on a news report about a sweetened buyout offer. Banks got hit — though JPMorgan Chase & Co. and Citigroup Inc. are expected kick off the industry’s earnings season next week on a bright note.

• Treasury 10-year yields fell eight basis points to 4.28%. The dollar extended its weekly drop. Bitcoin sank. The pound climbed after Keir Starmer’s Labour party swept to a landslide election win.

• Last week, the labor market showed fresh signs of moderation. June’s nonfarm payroll figures showed an increase of 206,000 jobs, a slight decrease from May’s revised count of 218,000. Moreover, the U.S. unemployment rate experienced a slight uptick, moving from 4% to 4.1%, which surpasses the Federal Reserve’s projection of a 4% rate for the current year. Inflationary pressures, which have been a concern for both markets and policymakers, may also be showing signs of easing. The ISM’s prices paid index, which can foreshadow the inflation trends for goods and services, reported lower-than-expected figures, aligning with the lowest rates since the pandemic’s end. Furthermore, the annual wage gains from the nonfarm jobs report were at 3.9%, a decrease from May’s 4.1% and one of the lowest since the pandemic.

• June consumer price index data are projected to be another step toward that goal, but the figures are only set for release on Thursday — after the Fed chair wraps up two days of Congressional testimony. Powell speaks Tuesday to the Senate Banking Committee, followed by a House panel appearance on Wednesday.

• With fresh data showing the highest unemployment rate since late 2021, and other figures illustrating weaker economic growth, Powell will likely be pressed harder by some lawmakers on why the Fed is hesitant to lower borrowing costs. On Tuesday, Powell said recent data suggest inflation is getting back on a downward path, but that he and his colleagues would like to see that progress continue. The so-called core CPI, which excludes food and energy costs and is seen as a better measure of underlying inflation, is expected to rise 0.2% in June for a second month. That would mark the smallest back-to-back gains since August, a pace more palatable for Fed officials. The inflation report is also forecast to show a modest 0.1% increase in the overall CPI from a month earlier. Compared with June of last year, the price metric is projected to rise 3.1%, the smallest annual advance in five months.

• INDONESIA: Indonesia’s Manufacturing Purchasing Manager’s Index (PMI) in June 2024 corrected to 50.7, down 2.68% from 52.1 in May 2024. Indonesia’s Manufacturing PMI is now lower than countries such as China & the US which stood at 51.8 and 51.7 respectively, and also than several ASEAN countries such as Vietnam & Thailand; which stood at 54.7 and 51.7 respectively.

• S&P Global attributed the decline in Indonesia’s PMI to sluggish exports for four consecutive months. At the same time, the government is preparing a discourse to increase import duties of up to 200% on textile import products from China in response to China’s dumping actions which are considered detrimental to the domestic industry. Economic observers emphasize the potential blunder in the Minister of Trade’s plan because the imposition of Anti Dumping Import Duty (BMAD) that is too high on imported products is at risk of causing retaliation from the country of origin.

This Week’s Ooutlook

Here are some of the focuses that market investors need to monitor this week:
• 1. Inflation and Labor Market: This week’s inflation report to be released becomes the main focus after the shortened holiday week. Recent data showed moderation in the US labor market, with an increase of 206,000 jobs in the June nonfarm payroll report from 218,000 (May). The unemployment rate rose slightly to 4.1%, exceeding the Federal Reserve’s projections. Investors also watched for signs of easing inflationary pressures, with the ISM Prices paid Index reporting a lower-than-expected reading.

• 2. Democratic Party Politics: President Joe Biden faced growing skepticism in his party regarding a potential re-election campaign in 2024. Pressure from lawmakers such as Rep Mike Quigley and Rep Angie Craig added to internal concerns, reflecting a search for alternative strategies and candidates in preparation for the upcoming election.

• 3. Powell Speech and Monetary Policy: Federal Reserve Chairman Jerome Powell will testify before Congress on monetary policy. The focus will include questions regarding the Basel 3 Endgame, long-term debt for regional banks, and liquidity requirements. The speech is expected to provide an overview of the future direction of monetary policy.

• 4. Inflation Report (CPI): The inflation report for June will be in the spotlight on Thursday. Market expectations call for a 0.1% monthly and 3.1% annualized increase for CPI, while core CPI is expected to rise 0.2%. This data will influence the Federal Reserve’s decision regarding interest rate policy.

• 5. Q2 Earnings Season: Starting Friday, S&P 500 companies such as JPMorgan Chase, Wells Fargo, and Citigroup will begin their second quarter earnings reports this year. Preliminary projections show profit growth of 8.6% and revenue up 4.7% compared to the previous year. This positive trend reflects a strong economic recovery and has the potential to influence overall market sentiment.

• 6. Other Economic Data: In addition to the CPI report, investors will also monitor the weekly jobless claims and the US Producer Price Index (PPI) reports due on Thursday and Friday. These data provide additional insights into the condition of the US economy and may influence market expectations for future monetary policy.

Download full report HERE.