Market predicts the Fed will raise interest rates again

The United States stock market, the S&P 500, closed down -1.15% throughout last week's trading. Along with hawkish signals from the Fed minutes, economic indicators regarding the labor market also influenced sentiment. ADP's report on private hiring showed an addition of 497 thousand jobs in June, significantly above consensus expectations of 228 thousand and last May's 267 thousand. This report shows that the labor market is in a resilient position. Another factor putting pressure on the benchmark index was the decline in technology shares after a massive rally fueled by enthusiasm around artificial intelligence. According to the CME FedWatch tool, the market is now pricing in a 92% probability of a 25 basis point increase by the Fed at this month's meeting.

Indonesia's inflation is 3.52%, the lowest in the last 14 months

Indonesia's inflation reached its lowest point in the last 14 months, recording inflation in June of 3.52% YoY, below the consensus estimate of 3.63% YoY. Controlled reductions in fuel tariffs and food prices, even in the midst of Eid al-Adha celebrations, are the main causes of the lowest inflation since April 2022. The decline in world oil prices of -12.8% since the beginning of the year has driven down the prices of non-subsidized fuels such as Pertamax turbo and Pertamax. In the context of food prices, they increased by only 1.45% YoY, which is the slowest increase since September 2020. Responding to this condition of decreasing inflation, Bank Indonesia (BI) will remain focused on macroeconomic stability and monitor movements in global interest rates. Even though food prices experienced moderate growth in June, the potential impact of El Nino on crop productivity, and its impact on food prices, is still a concern for BI.

Banking System Credit Growth

The banking system report in May reported that overall credit growth experienced growth of 9.4% YoY, which is the highest figure since December 2022. The driver of this growth comes from investment loans, especially from the manufacturing sector. Consumer credit experienced growth of 9.7% YoY, the highest since early 2019, with the main driver being vehicle loans.

Key Takeaways

The United States stock market, the S&P 500, closed down -1.15% throughout last week's trading. Along with hawkish signals from the Fed minutes, economic indicators regarding the labor market were resilient. Another factor putting pressure on the benchmark index was the decline in technology shares after a massive rally fueled by enthusiasm around artificial intelligence. According to the CME FedWatch tool, the market is now pricing in a 92% probability of a 25 basis point increase by the Fed at this month's meeting.

For the domestic economy, Indonesia's inflation reached its lowest point in the last 14 months, recording inflation in June of 3.52% YoY, below the consensus estimate of 3.63% YoY. Controlled reductions in fuel tariffs and food prices, even in the midst of Eid al-Adha celebrations, are the main causes of the lowest inflation since April 2022. In other economic reports, the banking system report in May reported that overall credit growth experienced growth of 9.4% YoY, which is the highest figure since December 2022.

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