US annual inflation rises at lower than expected pace, causing a market rally and the US Dollar to weaken. Interest rate hikes are however unlikely to be over yet
Good news on US inflation: US inflation rate slide to the lowest in 2 years. Headline CPI has decreased from 4% to 3%, while the core inflation rate has dropped from 5.3% to 4.8%
Markets rally: Unexpectedly, we saw the stock market rally - On Wednesday, the Dow experienced a 0.3% increase. Although it briefly reached a new high for 2023, it closed near its lowest point of the session. The S&P 500 saw a rise of 0.75%, and the Nasdaq surged by 1.15%, both achieving their highest levels in over a year
We may see the dollar plunging: Alongside a market rally, the dollar crashed to its lowest in more than a year on Wednesday. Despite expectations of a prolonged decline, the dollar has proven resilient since the start of the year. However, leading money managers now think that its current strength is temporary as US interest rates approach their highest point and the Fed's aggressive tightening measures start impacting the world's largest economy
Interest rate hikes unlikely to be over: Traders currently anticipate that the upcoming hike on July 26, which would bring the benchmark US rate to 5.5%, will be the final one for an extended period of time
Deflation, falling exports and imports, heightened sensitivity toward negative China market commentary and Yellen's visit
China deflation: In June, China's consumer inflation rate remained flat, while factory-gate prices continued to decline, raising concerns about the risk of deflation and increasing speculation about the potential for economic stimulus measures
China exports fall: In June, China experienced a 12.4% decline in dollar terms in its exports compared to the same period the previous year. This marks the second consecutive month of decline and the largest drop since the onset of the Covid pandemic in early 2020. Notably, exports to the US saw a significant decrease of nearly 24%, marking the 11th consecutive month of decline and the worst result since the pandemic's beginning
Imports also falling: Imports also fell by 6.8%, highlighting the domestic economy's weakness and the influence of the technology conflict with the US and its allied nations
Heightened sensitivity in Beijing toward negative market commentary: The financial regulator of China has requested banks to provide a response to a pessimistic research report on the country's economy released by Goldman Sachs. China Merchants Bank addressed the Goldman report saying that it has "misled some investors" and was "illogical"
More economic aid to support depressed property market: On Tuesday, leading state-run financial newspapers published reports highlighting the potential implementation of additional policies to support the property market, along with measures aimed at enhancing business confidence
US Treasury Secretary Janet Yellen's 2 day visit to Beijing: Yellen said she sought to convince China’s newly installed economic team that the US isn’t bent on seeking “economic advantage” against the country
Singapore's reserves dwindles from poor market conditions; Likely to cause ripple effects on the government's budget
Temasek makes $7b loss as 1-year shareholder return turns negative: This is Temasek's first time in the red since a $6.7 billion loss in 2016 and a reversal from an $11 billion net profit a year ago. Overall, Temasek's 20-year and 10-year TSRs is at 9% and 6% respectively, which are still decent
MAS also reported a $30b loss and GIC is likely in the red too: As we reported last week, MAS also announced a c.$30.8b loss. Given the global economic climate in the past year, characterized by high inflation, rising interest rates and slowing growth, it is likely that GIC is in the red too
Net Investment Return Contribution (NIRC): Under this, the Government can spend up to half of the long-term expected investment returns generated by Temasek, GIC and MAS. Will we see deepening budget deficit this year? Likely. Nevertheless, according to Temasek's CFO Png Chin Yee, the loss is a reporting requirement under the IFRS and will not affect Temasek’s NIRC to Singapore’s annual Budget.
