Weekly Market Review

Weekly Market Review, 26-30 June, 2014: Asian Markets Buoyed By U.S. Rally

Global markets experienced a mood swing this week, as investors regained their comfort with risk along with the trust and believe in U.S. future of Economics, sending stocks higher and the price of gold down. However, investors also still continued to buy safe-haven bonds, such as the German bund and US Treasury securities.

Thus, it triggers a rallied in Global bond markets, with yields falling broadly. The yield on Germany’s 10-year bund fell to 1.285 perceny on Thursday, its lowest level since May 2013. The yield on the 10-year US Treasury note fell to 2.401 percent on Thursday before rebounding somewhat. Even Spain’s 10-year yield dropped to an all-time low of 2.793 percent.
 
Consensus are Confidence with U.S. Future Economy
U.S. GDP has contracted by 1 percent annualized pace in the Q1, although a downward revision had previously largely been expected, influenced by high inventory levels and weak exports. However, economists and investors see signs of Q2 growth. The consensus estimate for the largest economy in the world to expand nearly to 4 percent annualized pace in Q2. Backing up those expectations this week were a sharp drop in initial jobless claims and positive data on durable goods orders, service sector growth and consumer confidence.
Meanwhile, U.S. stocks repeatedly hit record levels this week as investors speculated that economic activity was picking up despite a report showing that the U.S. economy shrank more than expected in this year’s Q1. The Standard & Poor’s 500 Index ended Friday at its 14th all-time high so far this year, according to Dow Jones. Trading activity was relatively muted on a holiday-shortened week, after U.S. financial markets were closed Monday for Memorial Day.

Stocks closed with solid positive trend for the week. The S&P 500 and The Nasdaq Stock Index were surged quite high by 1.21 and 1.36 percent in a week. Meanwhile, the Dow Jones Indsutrial Composite was also continuing its rally by closed with 0.67 percent upside in a week.
 
Waiting for Eurozone May Unemployment Report
Next week marks a busy period for economic data for Eurozone, including the May unemployment report, which will be released on June 6. Financial markets will also focus on the European Central Bank monetary decision on June 5. The ECB is expected to cut its main interest rate to close to 0 and announce other measures to stimulate growth in the eurozone.
 
Surprising Hike in German Jobless
The number of people out of work in Germany grew unexpectedly in May, rising by almost 24,000 to 2.9 million, the first increase in six months. Strength in Europe’s largest economy has helped sustain the eurozone, but weakness in the export markets of some of its neighbors appears to be catching up with Germany.

However, Germany’s jobless rate remains healthy at 6.7 percent, a two-decade low. The overall eurozone unemployment rate was 11.8 percent in March, just below its all-time high.

FTSE 100 Index was having a rebound in this week, as investors were buoyed with ECB plan to cut its main interest rate close to 0. This increment could cover its previous week losses, FTSE 100 reported a weekly gain by 0.42 percent.
 
Japan’s Tak Hike Bite The Economy Larger Than Expected
The increase in Japan’s sales tax, to 8 percent from 5 percent as of 1 April, took a larger bite out of household spending and industrial production than expected. Japanese household spending fell 4.6 percent in April from annualized pace in the same month. Industrial output slid 2.5 percent in April as companies sought to avoid a stockpile of inventories in the aftermath of the sales tax increase.

However, Japan’s inflation rose in April, an encouraging sign, coming as the country strives to meet its central bank’s target of 2 percent price growth by next year. Consumer prices increased 3.2 percent in April from a year earlier. The Bank of Japan estimates the sales tax added 1.7 percentage points, or roughly half of that.

However, the market still optimist that the governemnt still coud meet its economic target which being confirmed by Nikkei 225 index that its rally by experienced a weekly upside gain by 1.18 percent in a week.
 
Regional and Global Catalyst Leverage IHSG
Indeks Harga Saham Gabungan (IHSG) closed down again in the last day of trading, increase its gap from its psychological level on 5000. Last week market not that crowded as usual, due to 2 days of market closed in Holy Day.

Previously in Wednesday IHSG have turn around the trend by experienced an upside gain to 4985.58, following the rally from U.S. equity market and bouyed by China’s May Purchasing Manager’s Index (PMI) that increase to 50.8, the highest since last December, as if the index is above 50, it translates that the manufactures of the country is having an expansions.

Moreover, China regulator also planning to cut the Mandatory Minimum of Account (Giro Wajib Minimum) for several bankk in China which expected could increase the liquidity in the country to expand and meet its GDP growth by 7.5 percent in this year.

However, this catalyst was being used by the traders to done profit taking action, as traders and investors still try to minimize its risk as the election not concluded yet. IHSG was continue its bearish trend and closed down by nearly 2 percent in a week to 4,893.91 in the last trading session.
 
Aldi Adrian Hartanto

Investment Analyst at Finance Indonesia and Second Winner of CFA Institute International Investment Research Challenge (IIRC) for regional level.

Radio Finance Indonesia

June 2nd, 2014

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