Stocks & Rupiah Update Indonesia: Mixed Signals Federal Reserve

In recent weeks there has been a series of weaker-than-expected US economic data. Given that the Federal Reserve’s decision to hike interest rates is based on such data (particularly employment and inflation figures), it raises expectation that the Fed will postpone hiking interest rates until the third or fourth quarter in 2015. Economic growth of the USA was only recorded at 0.2 percent (y/y) in the first quarter of 2015, down from the 2.2 percentage point growth in the previous quarter and below the 1 percent growth estimate of analysts. But despite weak US economic data, Fed Chief Janet Yellen stated that the chance of a Fed fund rate hike this year is still open. In fact a June hike is still a possibility although it would imply that US economic data will have to improve sharply over the next two months.

In its statement, the Federal Reserve said the pace of job gains moderated (implying a downgrade of its view last month) and that underutilization of labour resources was little changed. Meanwhile, inflation continued to run below the Fed’s longer-term objective. As such, analysts agreed that the Fed’s statements signaled a ‘dovish stance’.

Regarding domestic sentiments, market participants are still concerned about weak economic growth in the first quarter of 2015. Several key corporate earnings reports of listed Indonesian companies have been weak, suggesting that GDP growth in Q1-2015 has been weak as well. Astra International, one of the largest diversified conglomerates in Indonesia, saw its net profit and revenue decline by 15.6 percent (y/y) and 9 percent (y/y), respectively, in the first quarter of 2015. Meanwhile, loan growth of Bank Central Asia, one of the leading commercial banks in Indonesia (and the largest private lender in terms of assets), was far below loan growth recorded in the first quarter last year.

In early May Statistics Indonesia (BPS) is scheduled to release the country’s official GDP growth figure.

However, due to severe declines (the Jakarta Composite Index has fallen 6.07 percent over the past four trading days), Indonesian stocks have been oversold and therefore a technical rebound is possible.

Jakarta Composite Index (IHSG):

Meanwhile, the Indonesian rupiah depreciated 0.03 percent to IDR 12,941 per US dollar according to the Bloomberg Dollar Index by 13:10 pm local Jakarta time. However, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.21 percent to IDR 12,937 per US dollar on Thursday (30/04).

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

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