05 Jun

The OPEC+ countries have agreed to cut production. Inflation in Indonesia reached the central bank’s target

June 5, 2023

By JustMarkets

At the close of the stock market on Friday, the Dow Jones Index (US30) gained 2.13% (+2.95% for the week), and the S P 500 (US500) added 1.45% (+3.04% for the week). The NASDAQ Technology Index (US100) jumped by 1.07% on Friday (+3.96% week-to-date).

The monthly Nonfarm Payrolls report showed that the US economy added 339,000 jobs in May (forecast: 190K jobs, previous: 294K). The unemployment rate rose to 3.7% (forecast 3.5%, previous 3.4%). Year-over-year wage growth slowed to 4.3%. Fed officials are paying particularly close attention to these numbers ahead of the upcoming two-day meeting, which begins June 13. Labor market data came out mixed with signs of weakness. For the US Fed, this is a sign that interest rates are starting to have a negative effect on the labor market. The likelihood of a pause in June rose to 75% after the news was released. Fed Chairman Jefferson said that skipping a rate hike at the June meeting would give the Central Bank more time to evaluate the data, although it does not mean that rates have peaked. Philadelphia Fed Harker takes a similar view, reiterating that it will be a skip, not a pause.

Morgan Stanley predicts that the Federal Reserve seems poised to halt rate hikes in June and believes that the US Central Bank will pause for a long time before moving to lower rates. Morgan Stanley estimates that the Fed will eventually cut rates starting in the first quarter of 2024.

Tomorrow the World Bank will release its latest global growth forecasts. Last month, the World Bank warned of a slow-growth crisis in the global economy that will persist over the next decade amid turmoil in the financial sector, high inflation, the ongoing effects of the Russian invasion of Ukraine, and three years of the COVID-19 pandemic.

Equity markets in Europe were mostly up on Friday. German DAX (DE30) gained 1.25% (-0.08% for the week), French CAC 40 (FR40) added 1.87% (-1.12% for the week), Spanish IBEX 35 (ES35) increased by 1.70% (+0.65% for the week), British FTSE 100 (UK100) was positive 1.56% (+0.48% for the week).

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Ignazio Visco, Governor of the Bank of Italy, said Saturday that falling energy prices should help tame inflation in the region. Visco also warned against a spiral of wages and prices, saying that wage increases should come on the back of a growing economy, not in pursuit of inflation.

The long-term decline of the lira reached a new level after the return to power of Turkey’s autocratic President, Recep Erdogan. The lira has lost 90% of its value against the US dollar over the past decade and fell to less than 5 cents on Thursday, a new low. The falling lira is the flip side of the massive inflation the Turkish people are facing. Turkey’s inflation rate currently stands at 43.75%.

OPEC+ countries have agreed to a total oil production cut of 3.66 million BPD (barrels per day). OPEC+ produces about 40% of the world’s oil, which means its decisions could have a major impact on oil prices. Usually, production cuts go into effect one month after they are agreed upon. Western countries have accused OPEC of manipulating oil prices and undermining the world economy through high energy prices. The West has also accused OPEC of supporting Russia too much, despite Western sanctions over Russia’s invasion of Ukraine.

Asian markets traded flat last week. Japan’s Nikkei 225 (JP225) gained 0.43% for the week, China’s FTSE China A50 (CHA50) declined by 0.22% for the week, Hong Kong’s Hang Seng (HK50) jumped by 4.02% for the week, India’s NIFTY 50 (IND50) gained 0.25%, and Australia’s S P/ASX 200 (AU200) was negative by 0.14% for the week.

Indonesia’s annual inflation rate fell to 4% in May, reaching the upper end of the central bank’s target range. Inflation in Southeast Asia’s largest economy has been above the Bank Indonesia (BI) target range of 2% to 4% since June 2022 due to pressure from rising global food and energy prices. After peaking around 6% in September, inflation has since gradually declined after the central bank raised interest rates by a total of 225 basis points. At the last policy meeting, BI expected overall inflation to fall to its third-quarter target. Now analysts expect BI to keep rates unchanged for the year as downside risks from lower global food prices are counterbalanced by rising oil prices due to OPEC+ production cuts.

In the commodities market, futures on cotton showed the biggest gain last week (+3.31%). Futures on natural gas (-9.93%), orange juice (-4.45%), gasoline (-3.33%), and sugar (-2.48%) showed the biggest drops.

S&P 500 (F) (US500) 4,282.37 +61.35 (+1.45%)

Dow Jones (US30)33,762.76 +701.19 (+2.12%)

DAX (DE40) 16,051.23 +197.57 (+1.25%)

FTSE 100 (UK100) 7,607.28 +117.01 (+1.56%)

USD Index 104.04 +0.48 +0.46%

Important events for today:
  • – Japan Services PMI (m/m) at 03:30 (GMT+3);
  • – Caixin Services PMI Services PMI (m/m) at 04:45 (GMT+3);
  • – Switzerland Consumer Price Index (m/m) at 09:30 (GMT+3);
  • – German Services PMI (m/m) at 10:55 (GMT+3);
  • – Eurozone Services PMI (m/m) at 11:00 (GMT+3);
  • – UK Services PMI (m/m) at 11:00 (GMT+3);
  • – Eurozone ECB President Lagarde Speaks at 16:00 (GMT+3);
  • – US ISM Services PMI (m/m) at 17:00 (GMT+3).

By JustMarkets

 

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.


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