IHS Markit estimated, the United States (US) economy fell at a 35.3 percent in the second quarter, which subtracts about 25 percentage points from GDP growth - Photo by White House

JAKARTA (TheInsiderStories) – Good morning. Last week ended with a brief relief for the Rupiah and Indonesia financial markets but Donald Trump’s statements on the escalating trade war between the United States and China will again put volatility into the center stage.

Over the weekend, the billionaire President said the US administration is preparing another round of tariffs on Chinese goods worth US$267 billion. This announcement came as the US administration planned to impose 25 per cent tariffs on $200 billion worth of Chinese goods, on top the already higher tariffs on $50 billion worth of Chinese goods.

That means, if Trump decides to go ahead with his threat, almost all Chinese goods coming the the US will be charged with higher tariffs, which the US President said as necessary measures to counter China’s unfair trade practices.

The revelation that US trade deficit with China is at record high in August adds more fuel into fire and work in favor of Trump’s narrative that the world’s largest economy is at the losing end in its bilateral trade with the world’s second largest economy.

China chalked up a trade surplus of $31 billion with the US in August, rising from $28 billion in July, showing that despite the tit-for-tat tariff policies between the pair trade remains robust.

Trump also indicates that next in his crosshair is Japan. In an interview with the Wall Street Journal, the US President revealed that his administration is conducting an investigation on automobile imports, including those coming from Japan.

Escalating trade war will dampen investors’ appetite on emerging market assets, which already adversely affected by financial crisis in Argentina and Turkey and the US Federal Reserve’ monetary tightening.

Last week ended with both the Rupiah and the Jakarta Composite Index (JCI) gaining some strength after a steep decline. The rupiah moved up at 14,884 per US$1 on Friday (06/09) from 14,891 on Thursday, while the JCI gained 1.3 per cent to end at 5,851. Though foreign investors continued to sell Indonesia equities worth Rp280 billion.

The announcement by Bank Indonesia (BI) that the country’s foreign exchange reserves remain ample despite heavy intervention in both bond and currency market should provide some positive sentiment in the market. BI said Indonesia’s reserves stood at $117.9 billion by end of August, slightly down from $118.3 billion at end of July.

The Indonesian government also issued another policy measure to reduce the Rupiah’s volatility. The Energy and Mineral Resources Ministry announced a norm obliging all private oil producers to offer their shares of output, which is mostly shipped overseas, to domestic buyers first, most likely PT Pertamina. Given that private producers’ oil shares stand at around 200,000 barrels per day, then the policy will help to reduce imports significantly.

Furthermore, the ministry also planned to release around 3.6 million barrels of oil deemed as unusable from its national reserves which, if proceeds as planned, will bring revenue in the form of foreign currencies.

From politics, the opposition camp is close to name retired general Djoko Susanto to lead its campaign team for the 2019 Presidential Election. Susanto certainly carries more experience and clout compares to the ruling coalition’s campaign head, Erick Thohir, who is relatively a political novice.

May you have a profitable day.

TIS Intelligence Team, Email: theinsiderstories@gmail.com