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Whiff of Relief

October saw a significant slowdown in US inflation, a development that markets celebrated as a clear signal that the Fed's "higher for longer" narrative is losing steam.

In October, both core and the overal CPI & PPI increased below market consensus in line with our economist projection that deflationary trend is happening.

The market anticipate that the Fed may resort to full-on accommodation sooner than expected, implementing rate reductions, in line with what they have done historically to counter the economy slowdown.

Market expectations, as per data from the CME FedWatch Tool, suggest a forecast of 75 basis points in cuts for 2024, bringing the fed funds rate to 4.50%-4.75%.

The S&P 500 index responded by opening higher, and Treasury yields experienced a significant decline (4.5%, the lowest in 7 weeks), indicating traders' dismissal of the likelihood of another rate hike.


On the contrary, the DXY chart indicates a significant bearish breakout for the DXY index following the latest US inflation data, leading to a 5% decline to the 104 level.

Indonesia is riding the wave of positive news, with the Rupiah strengthening significantly today in response to reduced inflation and anticipation of rate cuts.

Source: RTI

Additionally, Indonesia's trade balance shows an upward trend, boasting a surplus of USD3.48 bn , surpassing last month's figures, booking 42 months surplus consecutively.

A trade surplus surpassing market expectations suggests reduced pressure on BI to raise rates next week. We believe the improved external balance should be sufficient to stabilize the IDR, and BI is likely to maintain rates unchanged at the November 23 meeting.

All in all this brings a breath of fresh air to the equity market. It's crucial to highlight that, fundamentally, both the MSCI index and our top picks are performing commendably well, even amidst external pressures. Among the composite selection of stocks from MSCI and our top pick stock recommendations, 90% have surpassed or met 70% of the FY23 revenue consensus.

Source: Company, Sucor Sekuritas

Additionally, close to 70% have achieved 70% or more of the FY23 earnings consensus, underscoring their financial strength and profitability.

Source: Company, Sucor Sekuritas

From this chart we can also conclude that, 60% of these stocks have demonstrated success by meeting or exceeding the 70% threshold in both revenue and earnings. This collective overview presents a favorable trend in the overall health and potential of these chosen stocks, highlighting their capacity to meet or surpass market expectations.

The market can finally get a whiff of relief after being put through strain of rate hike and inflation. We are cautiously optimistic that 4Q23 will present opportunity for recovery and stronger economic growth!

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