![Rectangle 3](https://star-am.com/wp-content/uploads/2023/08/Rectangle-3.png)
STAR Insight, Market Update 12 June 2023
75% Chance of the Fed Holding Interest Rates
The United States stock market, the S&P 500, closed up +0.39% throughout last week's trading. Investors have largely refrained from making big moves ahead of the interest rate decision at the Fed's June 13-14 meeting, as well as the consumer inflation report for May. According to the CME FedWatch tool, market players predict a 75% chance that the Fed will keep interest rates unchanged in June. Economic data during the week shows support for the Fed's pause narrative. The Institute for Supply Management's U.S. services activity index almost showed stagnation for May, while factory orders for April rose less than expected. Additionally, initial jobless claims jumped to the highest level since October 2021. The data shows signs of cooling in the economy while also indicating that cracks are starting to appear in the previously very resilient labor market. In the spotlight of global developments, at the end of last week, Saudi Arabia decided to cut production by 1 million bpd, reducing its total output to the lowest level since June 2021. This step is predicted to avoid weakening oil prices.
May inflation drops to 4%
Inflation in May showed the lowest annual inflation in the last 12 months, at 4%, compared to 4.33% in April. This 4% figure has been included in Bank Indonesia's inflation expectations for 2023. This decrease was caused by food inflation and core inflation which were lower than expected. The lower than projected slowdown in food inflation was likely driven by a better harvest season, as reflected by lower chili prices followed by stable rice prices. In addition, transportation and clothing prices recorded deflation after the Eid celebrations.
In terms of core inflation, there also continues to be a slowdown to 2.66% in May, from a peak of 3.36% at the end of 2022. Apart from the impact of the second round of controlled increases in fuel prices and a stronger rupiah, the core slowdown may be a sign that demand domestic has not received a significant boost. This premise is also supported by slowing money supply data, as M1+ (money supply + savings) only grew 3.4% in Apr 2023, marking the slowest pace since 2012.
Sri Mulyani Proposes an Increase in the 2024 Infrastructure Budget
Minister of Finance Sri Mulyani proposed an infrastructure budget of 396.9 – 477.5 trillion rupiah for 2024, higher than 392 trillion rupiah this year. The budget will increase by 1.2 – 21% annually. This budget will mainly be used for the construction of the new National Capital City (IKN) in East Kalimantan. Apart from that, another priority of this budget is to complete the construction of toll roads in Sumatra.
Key Takeaways:
The United States stock market, the S&P 500, closed up +0.39% throughout last week's trading. According to the CME FedWatch tool, market players predict a 75% chance that the Fed will keep interest rates unchanged in June. Economic data during the week shows support for the Fed's pause narrative. The Institute for Supply Management's U.S. services activity index almost showed stagnation for May, while factory orders for April rose less than expected. Additionally, initial jobless claims jumped to the highest level since October 2021. The data shows signs of cooling in the economy while also indicating that cracks are starting to appear in the previously very resilient labor market.
For the domestic economy, inflation in May showed the lowest annual inflation in the last 12 months, at 4%, compared to 4.33% in April. This 4% figure has been included in Bank Indonesia's inflation expectations for 2023. This decrease was caused by food inflation and core inflation which were lower than expected.
In other economic news, Minister of Finance Sri Mulyani proposed an infrastructure budget of 396.9 – 477.5 trillion rupiah for 2024, higher than 392 trillion rupiah this year. This budget will mainly be used for the construction of the new National Capital City (IKN) in East Kalimantan. Apart from that, another priority of this budget is to complete the construction of toll roads in Sumatra.
![12juni2023-1](https://new-prod.star-am.com/wp-content/uploads/2023/06/12juni2023-1.jpg)
![12juni2023-2](https://new-prod.star-am.com/wp-content/uploads/2023/06/12juni2023-2.jpg)
![12juni2023-3](https://new-prod.star-am.com/wp-content/uploads/2023/06/12juni2023-3.jpg)
ANALYSTS CERTIFICATION
The views expressed in this research report accurately reflect the analysts’ personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.
DISCLAIMERS
This research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. Contents in this research is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on our report and wish to rely upon, whether for the pur-pose of making an investment decision or otherwise. Any recommendations contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT. Surya Timur Alam Raya or its affiliates may seek or will seek investment or other business relationships with entities in this report.