The Board of Transaction at Indonesia Stock Exchange - Photo by IDX

JAKARTA (TheInsiderStories) – The escalation of trade war between the United States (U.S) and China rocked global stock markets. Yesterday, three major indices on Wall Street and European market closed down.

Again, U.S’s President Donald Trump threatened to impose an additional 10 percent import tariff on other Chinese goods worth of US$200 billion. Beijing also warned it would reciprocate. Trump’s threat was raised following China’s decision to raise import tariffs by $50 billion against US goods.

The Dow Jones Industrial Average ended down 287.26 points, or 1.15 percent to 24,700.21. With this decline, Dow Jones’s performance this year has been minus.

The S&P 500 index trailed by a decline of 11.18 points or 0.40 percent to 2,762.57. Similarly, Nasdaq Composite eroded 21.44 points or 0.28% to 7,725.59.

Source: Bloomberg

Coincident with the U.S market, the European stock markets weakening continued on Tuesday (19/06), weighed by stocks of automotive, mining and technology. The European benchmark Stoxx 600 index fell for a third consecutive day of trading, with a 0.7 percent.

The automotive sector on the Stoxx 600 reached the lowest level in seven months. The Stoxx 600 performance recovered slightly after German Chancellor Angela Merkel and French President Emmanuel Macron reached an agreement on the euro zone budget.

Shares of Italian banks, which posted a 1 percent gain, received further support after a European Central Bank supervisor said the central bank could adopt a softer approach in urging banks to reduce bad loans.

Meanwhile, Germany’s DAX index, which houses several car manufacturers explicitly targeted by Trump in its tariff rhetoric, posted the biggest decline of 1.2 percent.

European companies are generally more exposed to the global economy than U.S companies, making them more vulnerable to countries that charge higher rates for goods. About 18 percent of European companies earn revenue from North America and 9 percent from China, while 32 percent comes from emerging markets.

On the other hand, U.S companies only get 4 percent of their revenue from China and 10 percent from Europe, according to Morgan Stanley.

On the money market, the U.S dollar closed higher on yesterday. The U.S dollar index, which tracks the greenback’s move against the euro, yen, pound sterling, and three other currencies, traded up 0.27 percent or 0.257 points to 95.013. The dollar index also briefly touched its highest level since July 2017 at 95.296.

Commodity market also affected on the rising trade wars between the United States and China also weighed on the outlook for energy demand as OPEC and a number of oil producers moved toward increased production.Crude oil futures fell at the end of trading on Tuesday.

The price of West Texas Intermediate (WTI) oil for July 2018 contracts ended at $65.07 per barrel on the New York Mercantile Exchange. Brent oil for August delivery fell 26 cents and ended at $75.08 a barrel on the London-based ICE Futures Europe exchange.

The level of volatility in the oil market rose to its highest level in three weeks. The global benchmark crude traded at a premium of $10.18 against WTI for the same month.

U.S oil prices barely moved from Tuesday’s closing level even though the American Petroleum Institute (API) reportedly reported a drop in crude reserves in the country last week, while gasoline supplies rose higher. The API reportedly reported a drop in US crude stocks by 3.02 million barrels last week, while gasoline supplies rose 2.11 million barrels.

Meanwhile, Saudi Arabia and Russia pushed 22 other major oil producing countries to ease their production boundaries as the group gathered this week.

But, Russian Energy Minister Alexander Novak supports an increase of 1.5 million barrels in daily collective production, while Iran, Iraq and Venezuela argue it is too early to withdraw from historic production restrictions that have helped erode global excess.

For the palm oil, Malaysian palm oil futures slumped more than 2 percent on Tuesday to their lowest in nearly two years, tracking weakness in related edible oils.

The benchmark palm oil contract for September delivery on the Bursa Malaysia Derivatives Exchange was down 1.8 percent at RM2,265 ($566.82) per tonnes at noon, after declining as much as 2.3 percent to its lowest since July 26, 2016 at RM2,253 earlier in the session. Trading volumes stood at 38,727 lots of 25 tonnes each at the midday break.

The Chicago July soybean oil contract declined over 1 percent, in line with soybeans. Palm oil prices track the performance of other edible oils, as they compete for a share in the global vegetable oils market.

In other related oils, the September soybean oil on China’s Dalian Commodity Exchange dropped 1.8 percent, while the Dalian September palm oil contract plunged 4.5 percent.

Market players may also be trading cautiously ahead of export data, said another trader, referring to June 1-20 shipment data from cargo surveyors. Malaysian palm oil shipments in the first half of June declined 7.2 percent – 9.6 percent from a month earlier, according to AmSpec Agri Malaysia and Societe Generale de Surveillance.

IDX Open After Long Holiday

After long holiday, today Indonesian Stock Exchange (IDX) re-open. Several analyst rate negative sentiments on the global market will shadowing the local market. As of June 8, the Jakarta Composite Index (JCI) closed at 5.993 level down 1.85% from the previous day.

Samuel Asset Management economist Lana Soelistianingsih revealed, from the many negative sentiments from global, U.S and China trade war needs to get more attention. The reason, China is one of the motor of the Asian economy as well as the world.

The government’s alignment in this regard needs to be of concern, as well as the way the government takes advantage of such conditions. Thus, the anticipation can be done if the direction of government in addressing the conditions of trade war is clear.

On the contrary, according to Lana, if the government is ready to anticipate the impact of trade war, it will have a positive impact for the country. If not done, then Indonesia could be flooded export of goods from China and U.S.

William Surya Wijaya, Vice President of Research at Indosurya Bersinar Sekuritas, have another sight. He said, this trade war does not have a big impact on the capital market cause fundamentally the domestic economy is strong.

While, Muhammad Nafan Aji, an analyst at Binaartha Parama Sekuritas, said sentiments from overseas will mainly affect today’s index movement. Even so, he said, some positive sentiment still leverage index movement.

Aji explained, positive catalysts are also obtained from the possibility of rising trade balance and also the world cup. The plan of Bank Indonesia related to loan to value is also likely to boost the index today. He predicts, JCI will move in a positive direction with the range at the level of 5,916 to 6,135.

Email: linda.silaen@theinsiderstories.com

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The Insider Stories Founder Linda Silaen has a solid, proven history, established over more than a decade as a journalist with a leading internasional news organization, of being the first with the biggest economic news stories in Indonesia. Specializing in corporate news, Linda is also a veteran of some of the biggest macroeconomic and general news stories as Indonesia rapidly transforms into a major market economy. One of the founders of the original blog from which this company developed, Linda’s knowledge of investors’ information communications and data us developed from unrivaled networking skills that make her a well-known name among CEOs, bankers, government officials and private equity investors both in Indonesia and other countries.

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