Some analyst sees the Jakarta Composite Index (JCI) and Rupiah will enter the green zone territory after the Constitutional Court ruling on the 2019 presidential election - Photo by The Insider Stories

JAKARTA (TheInsiderStories) – Good morning. Today, investors eyes will be directed to the inflation announcement by Statistic Indonesia. At the same time, the policy of United States (U.S) President Donald Trump and some of the world’s movements remains the investors concern.

Last May, Indonesia recorded low inflation of 0.21 percent on-year in May 2018, reflecting low people’s purchasing power, 1.3 percent in year to date and 3.23 percent in the year on year. While, the consumer price index (CPI) recorded 132.99 in May 2018.

This inflation is considerably lower compared to the inflation in the Ramadan in the last three years, said Head of the Central Statistics Agency Suhariyanto on June 4. Monthly inflation rate recorded 0.39 per cent in Ramadan 2017, 0.66 per cent in Ramadan 2016, and 0.54 per cent in Ramadan 2015.

Based on data from the Statistics Indonesia, household consumption grew only 4.95 per cent in the first quarter of 2018, which was almost stagnant if compared to consumption rate in the first quarter last year at 4.94 percent.

However, the monthly inflation rate in May 2018 was higher than April 2018 at 0.1 per cent. The acceleration in a month to month inflation is likely due to the rupiah depreciation against the U.S Dollar. The rupiah depreciation brings impact to the increase of imports and accelerates inflation.

Talking on global movements, news of the United States demanding fair treatment from the World Trade Organization (WTO) and China’s manufacturing performance slowed to color the market today. Last week, Trump declared no plans to bring the U.S out of the WTO but he wants the country to be treated more fairly by the global trade counterpart.

Investors also awaits on further developments on Trump and Canadian Prime Minister Justin Trudeau relationships after clash on the last G7 meeting some time ago. Trump is reported communicated again with Trudeau last week through a phone,  other trade and economic issues via telephone.

Meanwhile, China reported its manufacturing sector growth slowed in June after performing well past forecasts in the previous month. Official data show that escalating trade tensions with the U.S adds to concerns about the Panda Country’s economy in the future.

In the Oil sectors, Saudi Arabian has agreed to rise its production to maintain global oil stability and to compensate for market demand.

Domestic Market

Last week, Rupiah in the spot market closed up 64 points or 0.44 percent to the level of Rp14,330 per U.S dollar. The strengthening of the rupiah over the weekend came as Bank Indonesia raised interest rates by 50 basis points to 5.25 percent at Friday’s meeting (29/o6), an increase for the third time in six weeks.

At the same day, The Jakarta Composite Index (JCI) closed up 2.33 percent or 131.92 points to 5,799.24. The JCI began to decline after reaching its peak at 6,689 in the first quarter of 2018 with price earnings ratio annualized of 17.8 times.

Some analyst saw, the correction that occurred in JCI throughout the first half of this year is projected to continue until the second half of this year, given the external dynamics that are the main factors of index correction is still quite volatile, especially sentiment of trade war between the U.S and China.

Along with that, the Federal Reserves (Fed) also began to aggressively raise interest rates, while the president of Trump lowered corporate taxes from 35 percent to 21 percent thus reinforcing the reason for foreign investors to repatriate funds to the U.S and the dollar became very strong.

In addition the tightened trade sentiment with China and the weakening of the rupiah currency is inevitable. The JCI’s escalating opportunity is supported by the value of the overvalued dollar, whereas the U.S itself is experiencing a large current account deficit, an acute deficit budget, and the amount of debt with GDP approaching 100 percent.

The repatriation and profit-taking of investors, this year there are also many changes in the political and economic dynamics, both domestically and abroad. In the country, Indonesia began to experience turmoil ahead of the presidential election.

The analysts judged, this condition will continue in the second semester. JCI is still likely to get a correction back to the level of 5,600, they said.

From a global standpoint, U.S and Chinese trade war sentiment still poses a great potential risk to the Indonesian market, while from within the country the market will highlight the achievement of government targets, particularly the completion of infrastructure projects ahead of the election.

Delayed infrastructure projects will certainly lead to an estimated logistics cost to remain high, impacting the projected economic growth next year. In addition, the market is also awaiting continuation of interest rate policy from the global central bank.

Bank Indonesia’s decision last week to raise BI 7 Days Repo Rate to 5.25 percent on one hand will help stabilize the rupiah, but here another opens up potential for not achieving economic growth targets. This will certainly have an impact on Indonesia’s economic fundamentals and the performance of the capital market.

In these circumstances, we recommends investors to wait and see in the near future. But, if interest rate policy has led to stability, it becomes an opportunity for investors to re-enter the market.