Economic Briefing: Global Pressures Continues to Darken the Market

Indonesia's Financial Service Authority noted foreign capital out from the country reached US$953.47 million since the beginning of 2019 until May 17, 2019 - Photo: Pixabay.

JAKARTA (TheInsiderStories) – Good afternoon. Investors worried on global pressures continues reflected in today’s financial market movements. The announcement of Bank Indonesia to relaxed loan to value not give a positive signal to the market, sell-off the shares that investors choose for today.

In the first trading session, the Jakarta Composite Index (JCI) fell 1.45 percent to a more than one-year low, or down 83.13 points to 5,663.64 level since the open in the red zone this morning. A total of 55 stocks rose, 309 shares fell, and 224 shares stagnated from 216 shares listed on the Indonesia Stock Exchange.

The selling pressure on blue chip stocks like PT Perusahaan Gas Negara Tbk (IDX: PGAS) slid nearly 9.5 percent, PT Telekomunikasi Indonesia Tbk (IDX: TLKM) fell 1.3 percent, PT Bank Mandiri Tbk (IDX: BMRI) weakened 2.3 percent and PT Unilever Indonesia Tbk (IDX: UNVR) down 1.8 percent was bring JCI closed in the negative territory.

Until the end of trading, the value of shares traded reached Rp4.1 trillion (US$292.86 million). The number of shares that transacted as much as 44.62 million unit and foreign net sell recorded Rp127.75 billion.

All nine sectoral indices of JCI settled in the red zone with the main pressure from the basic industry sector which weakened by 3.39 percent, followed by the infrastructure sector with a weakening of 2.15 percent. At the same time, an index of the country’s 45 most liquid stocks was down 1.5 percent.

Followed the local bourse, most of Southeast Asian stock markets also fell on Tuesday (03/07) as a rout in Chinese stock market ahead of a United States (U.S) deadline for further tariffs on exports. Asia-Pacific MSCI index ex-Japan dropped over 1 percent in early trade.

Singapore stocks fell 0.5 percent dragged down by financials, Malaysian stocks were down 0.4 percent weighed by utilities and telecom stocks, Philippine shares were up 0.4 percent led by industrials and financials ahead of inflation data due this week and real estate stocks and consumer staples dragged the Vietnam index lower.

Financial Market

The pressures also colored the movement of financial market around the Asian region. The local currency still tend to weaken, continuing weakening in trading yesterday, Monday (02/07).

The rupiah in the spot market down 7 points or 0.05 percent to Rp14.397 per U.S dollar in the opening session. The movement of rupiah against the dollar tends to weigh on the continued weakening of the Yuan as possible the imposition of tariffs on Chinese goods on July 6.

Same with the rupiah, the majority of Asian currencies weakened this afternoon, led by renminbi and yuan offshore China by 0.62 percent. Only Hong Kong dollar currency is observed to strengthen even though only by 0.01 percent.

Meanwhile, the U.S dollar index, which measures the strength of the U.S dollar exchange rate against a basket of major currencies, was up 0.35 percent or 0.329 points to 94.779 yesterday.

Oil Price

Meanwhile, crude oil prices weakened in late trading Monday after U.S President Donald Trump put pressure on Saudi Arabia to increase oil production. This worries traders about how it will affect future reserves capacity.

West Texas Intermediate (WTI) oil price for August 2018 contract fell 21 cents and ended at $73.94 per barrel on the New York Mercantile Exchange. Meanwhile, Brent oil for September delivery fell to $1.93 and ended at $77.30 a barrel on the London-based ICE Futures Europe exchange. This global benchmark crude traded a premium of $5.68 against WTI for the same month.

U.S benchmark crude prices rallied more than 10 percent in June amid tightening inventory levels and restrictions on global supplies that boosted demand for domestic production. This is despite OPEC‘s pledge to increase supply levels, with Saudi Arabia’s crude oil exports surging to its highest level in 15 months in June.

What Next?

Indonesian stocks and the currency resumed their slide today amid concerns economic growth may weaken followed of the central bank’s aggressive move on interest rates.

Minister of Finance Sri Mulyani Indrawati has mentioned there are four risks that could affect Indonesia’s economic performance in 2019. First, the trend of people’s consumption preferences, the tendency of investors to withhold direct investment plans, the normalization of monetary policy of the U.S and Europe, and the impact of U.S trade protectionism policy on Indonesia’s export performance.
Despite various risks, the government remains optimistic on the economic growth targets in 2019 in the range of 5.4 to 5.8 percent. The government estimates consumption and investment is still the driver of economic growth.
Consumption as the main factor will be maintained in terms of purchasing power through job creation and low inflation. Meanwhile, investment is expected to continue to increase in line with improved competitiveness and investor perceptions.
In addition, Indonesia’s competitiveness rating in the international arena continues to increase and investment grade predicate can be maintained.
However, the government’s optimism will face severe challenges from the policy of increasing the fed fund rate.
The central bank interest rate hike policy was also triggered by the current account deficit. Conditions are exacerbated by the phenomenon of U.S – China trade war that will put pressure on domestic exports in the medium term.
At this point, the monetary authorities need to take steps to anticipate that the foreign exchange reserves are not eroded more deeply. One policy is to raise interest rates.
Nevertheless, a number of macroeconomic variables are ensured to be affected so that economic risks as proposed by the Minister of Finance become relevant.