Fixed Income Update 14 Dec 2023
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 14 December 2023
Anticipating Clarity on Central Bank Stance
Last week, global market attention was focused on the awaited US labor data and inflation figures. The Non-Farm Payrolls for Nov '23 rose to 199K, while the Participation Rate increased to 62.80%, and the Unemployment Rate dropped to 3.7%. Additionally, Core CPI remained stable at 4.0% YoY, while the headline CPI stood at 3.1% YoY, becoming the focal point over the past week. These conditions have restrained the anticipated swifter decline in the median Fed Rate compared to earlier projections. On the domestic front, the release of FX Reserves, which surged by USD5.0 bn in Nov '23, stood out as a positive factor for the development of the Rupiah this week. Furthermore, the consumer confidence in Nov '23, still at an expansive level (at 123.60), coupled with the improved retail sales index in Oct '23 by +2.9% YoY, alongside the decline in motor vehicle sales to 46,020 units in Nov '23, have also influenced sentiment in the domestic market.
This week, a global wait-and-see approach continues to prevail. This behavior is primarily driven by the anticipation surrounding the FOMC Meeting on Wednesday (13 Dec '23), expected to not only unveil the current stance of The Fed but also disclose the Fed dot plot and economic projections.
The Fed released a Fed dot plot indicating a median expectation of a 75 bps cut in 2024 to 4.6% (VS 5.1% in the Sep '23 projection) by the end of 2024. This scenario was supported by the following Fed economic projections:
• GDP growth 2.6% (VS 2.1%) in 2023 and 1.4% (VS 1.5%) in 2024.
• PCE inflation 2.8% (VS 3.3%) in 2023 and 2.4% (VS 2.5%) in 2024, along with core PCE inflation 3.2% (VS 3.7%) in 2023 and 2.4% (VS 2.6%) in 2024.
• Unemployment 3.8% (VS 3.8%) in 2023 and 4.1% (VS 4.1%) for 2024.
Similarly, the awaited outcomes of the BoE and ECB interest rate decisions on Thursday (14 Dec '23), along with the BoJ interest rate decision on Wednesday (20 Dec '23), are pivotal in understanding potential changes in their future stances. Additionally, forthcoming data releases including the weekly initial jobless claims, US industrial production, various housing data in the US (Building permits, housing starts, and existing home sales), as well as UK and Germany's CPI inflation, are poised to influence global sentiment as the holiday season approaches. Domestic sentiment is expected to be influenced by data on automotive sales and the trade balance, encompassing the export-import conditions in the country.
Regards,
Fikri C Permana - KBVS Research Team