Fithra Faisal senior ecomist Samuel Sekuritas Indonesia will discuss what happened over the past week and what to expect in the week ahead.
The Fed Announcement and Its Impact
Last week, Fed Chairman Jerome Powell announced that there would be no rate cut this month. However, his speech indicated that there might be several rate cuts this year, especially starting in September. Nevertheless, Powell also mentioned that nothing is certain, and even at the September meeting, a rate cut is not guaranteed.
Looking at other indicators such as nonfarm payrolls and the rising unemployment rate, it is evident that the US economy is not doing well. This is reflected in the market performance, which has been red both regionally and globally, signaling a potential recession in the United States. The volatility index (VIX) for the US economy has surged 77% year to date, and the yield on the US 10-year Treasury has risen to 3.7%. This indicates that many people in the US are avoiding short-term risks and turning to long-term instruments, a sign of a possible recession.
Global Market Conditions and Domestic Market Response
The global market’s red performance this week indicates concerns about a potential recession. However, I see this as a short-term indication. People are predicting rate cuts in the medium to long term.
Domestic Economic Data
On the domestic front, there have been several important announcements. First, our inflation rate has eased to 2.13% from 2.51%, aligning with our previous prediction of 2.09%, though slightly below the market consensus of 2.37%. This shows signs of slowing demand. Additionally, the manufacturing PMI index fell below 50 to 49.3 from previously being above 50, indicating a contraction driven by rising production costs. This should be a concern as it shows a slowdown in both production and consumption.
Second Quarter Economic Growth
The latest announcement at the beginning of this week showed second-quarter economic growth at 5.05%, slightly slowing from the first quarter’s 5.11% but still above 5%. This is a positive indication amidst the currently red market. Despite some indicators of a slowdown, this figure shows that our economy remains quite strong.
Market Response
How is the market responding to these data points? On one hand, market volatility has increased with the significant rise in the VIX, though there was a brief euphoria on August 1 due to the dovish Fed announcement. This suggests a possibility of rate cuts, which could indicate that the US economy is not in good shape.
The domestic bond market shows potential bullishness due to the widening yield gap between the US 10-year Treasury and the Indo 10-year Treasury, potentially triggering capital inflows and a bullish trend in the bond market.
