Weekly Market Review

Weekly Market Review, 9-13 June 2013: Disappointing Data and Iraq Fears, Pulled Stocks Going Down

After setting a string of records in recent weeks, US stock indices fluctuated this week, reflecting investor unease with mixed economic data and news of escalating sectarian violence in Iraq. Investors move to “safe-haven” investment products such as bonds, gold and silver. The price of oil rose to a nine-month high on renewed fears of supply interruptions. Yields on the 10-year US Treasury note bounced around, falling sharply on Thursday after climbing earlier in the week on investor confidence over economic growth trends.
 
Mixed in Labor Market Data

In a sign of strength in the US labor market, job openings increased by 289,000 in May to a seasonally adjusted 4.46 million, the highest number since April 2007, according to the US Department of Labor reported. However, the number of people quitting their jobs rose in May. Though initial claims for unemployment benefits rose by 4,000 to a seasonally adjusted 317,000 in the week ended 7 June and the four-week moving average increased by 4,750 from a seven-year low to 315,250, the longer-term employment trend remains strong.
 
Disappointing Retail Sales in May, but Future Growth Remain

Several disappointing economic data were emerged during the week such as the World Bank lowered its forecast for global economic growth on Wednesday, and that more disappointing was a smaller-than-expected rise in May retail sales that only rose by 0.3% in May, after a revised 0.5% increase in April. Economists had forecast a 0.6% increase in May after a previously reported 0.1% rise in April However, overall sales growth is still expected for this quarter.
 
Iraq Issue Drive Oil Price Hike

Stocks saw their biggest losses of the week on Thursday, after reports surfaced that Sunni militants had seized control of the Iraq town of Mosul. Most immediately, the specter of renewed all-out civil war in Iraq threatened the nation’s energy production and resulted in a surge in oil prices. But investors also worried that turmoil in the Middle East had entered a dangerous new phase as sectarian conflict threatened to spill across borders.
 
U.S. Stocks Being Pulled After From Record High

Stocks pulled back for the week from recent highs due mainly to sharp declines on Wednesday and Thursday, particularly due to Iraq Crisis. All three major U.S . indexes, the Standard & Poor’s 500 Index, the Dow Jones Industrial Average, The Nasdaq Index were experienced a downturn during the week as much 0.68%, 0.88%, and 0.25% respectively.
 
Eurozone Industrial Output Exceed Consensus

Industrial output in the Eurozone rose 0.8% in April and 1.4% from a year earlier, better than economists’ expectations for a 0.4% monthly rise and 0.9% annual rate of growth. Portugal’s industrial production rose by a record 6.7%. Spain had its biggest monthly increase since August 2012. France and Italy returned to monthly expansion, while Germany’s results were disappointing, with its monthly production up a less-than-expected 0.2%.
 
However, this catalyst was not enough to pushed FTSE 100 Index to continue its rally, as the investors were overwhelmed with what happened in Iraq. The FTSE 100 Index reported a weekly loss by 1.14%, eroded the several weeks rally previously.
 
Japan Revised Its Q1 Economic Growth to 6.7%

Japan’s economy grew an annualized 6.7% in the first quarter, revised sharply higher from the initial reading of 5.9% on an unexpected surge in capital spending. This is the country’s fastest pace of growth since the third quarter of 2011 — evidence that the world’s third largest economy was in good shape when the retail sales tax increased in April from 5% to 8%.
 
Corporate Governance Reform in Japan

According to T.Row Price analysts, crucial corporate governance changes are also at work in Japan. Recently, corporate managements in Japan have adopted more shareholder-friendly policies, such as share repurchase programs and dividend increases. He believes that a new emphasis on profits and shareholder returns should benefit investors.
 
However, global political turbulence had hold the Nikkei 225 index to move even higher, which only end up reported a weekly upside gain by 0.14%.
 
Weak Housing Market Shadowed China’s Positive Economy Expectation

China’s economy is gaining traction, based on industrial production and retail sales data that picked up year-over-year in May. However, the country’s housing market remains weak. From January through May, housing sales fell 10.2% and construction starts tumbled 18.6%.
 
Meanwhile, The Hang Seng Index was finally could turn around the trend by raised quite a lot recently by reported a weekly gain by 1.60%.
 
IHSG Pulled Back by Global Sentiments

Indeks Harga Saham Gabungan (IHSG) was moving quite align with global markets, although there were still several positive domestic caltalysts that happened along the week. IHSG was closed down by 0.21% for the week.
 
IHSG movement in a week will mostly influence by global sentiments, particularly Iraq conflict that has pushed WTI Oil price to reached 4.27% hike in a week. This sentiment become a big issue because Iraq is the second biggest oil producer from Organization Petroleum Economic Countries (OPEC).
 
From domestic market, the catalyst is come from Bank of Indonesia that announces to hold its BI rate on 7.5% percent. As the foreign exchange reserve in May was increase to USD 107 Billion. Those catalysts have successfully strengthen the USD/IDR. In spot market, IDR was close appreciated by 0.78% in a week. The appreciation also happened due to bad data that imposed U.S, such as retail sales and labor market.

Aldi Adrian Hartanto is Investment Analyst at Finance Indonesia and 1st Runner Up of Regional Round CFA Institute International Investment Research Challenge (IIRC).

Radio Finance Indonesia

June 15th, 2014

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