Indonesia's benchmark Jakarta Composite Index climbed 0.01 percent to 4,451.59 points on Wednesday (11/11) despite foreign investors recording a net sell of IDR 614.4 billion (approx. USD $45.5 million). Uncertainty persists in the global economy as more macroeconomic data from China signal weaknesses in the world's second-largest economy. Growth in output from China's factories declined to a six-month low in October (missing expectations), following earlier disappointing trade and inflation data. On the other hand, it triggers hope that Beijing will step up stimulus measures.

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Kebanyakan indeks saham di Asia jatuh pada perdagangan hari Selasa (10/11) karena kekuatiran bahwa kemacetan ekonomi Republik Rakyat Tiongkok (RRT) berdampak negatif pada laju pertumbuhan ekonomi global, sedangkan pasar bersiap-siap menghadapi ancaman kenaikan suku bunga Amerika Serikat (AS) sebelum akhir tahun. Terlebih lagi, sentimen-sentimen di Asia Tenggara tidaklah positif karena mayoritas laporan pendapatan kuartal 3 tahun 2015 tidaklah memuaskan. Bila dikombinasikan, hal ini memicu peralihan ke aset-aset yang lebih aman. Indeks Harga Saham Gabungan (IHSG) jatuh 1,08% menjadi 4.451,05 poin.

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With a staggering 271,000 jobs added to the US economy in October, exceeding forecasts by a big margin, while the US unemployment rate eased to 5.0 percent, the majority of analysts and market participants now expect to see a 25 basis points Fed Fund Rate hike in December (markets are currently pricing in a 70 percent chance of a December US rate hike). Meanwhile, trade data from China underscore the persistent economic slowdown in the world's second-largest economy. What are the effects of these issues on Indonesian assets?

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Shares in the Asia-Pacific were mixed after opening on Monday (09/11). While, Japanese shares touched a fresh 2.5 month high on a weaker yen and Chinese shares went up (despite disappointing trade data), shares in Indonesia, South Korea and Australia were down. Indonesia's benchmark Jakarta Composite Index fell approximately 0.50 percent after opening on Monday, while the Indonesian rupiah had depreciated 0.83 percent to IDR 13,676 per US dollar by 09:16 am local Jakarta time.

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Indonesian stocks and the rupiah are feeling the negative impact of news from the USA. Both Federal Reserve Chairwoman Janet Yellen and New York Federal Reserve President William Dudley said a Fed Fund Rate hike in December is a "live possibility" amid low US employment, continued GDP growth and confidence that inflation will rise to the US central bank's target range. As a result of these remarks gold dropped to a one-month low, stocks declined, while bond yields and the US dollar were pushed higher.

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Indek Harga Saham Gabungan (IHSG) adalah salah satu dari beberapa indeks di Asia yang melawan tren pada perdagangan hari ini (02/11). Sementara kebanyakan indeks Asia, dipimpin oleh saham di Jepang, jatuh karena kekuatiran mengenai kontraksi yang berkelanjutan di Republik Rakyat Tiongkok (RRT), IHSG berhasil naik 0,22% menjadi 4.464,96 poin. Sementara itu, harga minyak jatuh dan dollar Amerika Serikat (AS) memperpanjang kerugian terhadap sebagian besar mata uang negara-negara berkembang.

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Indonesian assets are leading declines in Asia's equity and currency markets on today's trading day after a 'hawkish' statement released by the Federal Reserve indicated that the US will not raise its Fed Fund Rate yet, but does seem to open a door to a December interest rate hike. Despite the good performance of US stocks on Wednesday (28/10), most Asian markets were down today. Moreover, solid factory output in Japan reduced chances of further stimulus measures in Japan (Japan's central bank is to meet this Friday).

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Most Asian stocks declined on Wednesday (28/10) as markets are waiting for results of the Federal Reserve's two-day policy meeting (later today the Fed will release a statement). Although analysts and investors seem confident that the US central bank will delay raising its key Fed Fund Rate (and will not provide a clear signal about the timing of higher rates), markets remain cautious. Moreover, oil prices fell to two-month lows overnight.

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Most Asian stock indices were in red territory on Tuesday (27/10) ahead of the Federal Reserve's two-day policy meeting (scheduled to start today) and following the sluggish performance of US and European stocks on Monday. Investors seem to engage in profit-taking after global equity markets hit a two-month high on China's interest rates cut, the European Central Bank (ECB)'s plan to add stimulus to boost inflation, and expectation of more stimulus from Japan's central bank as well as a delay in higher US interest rates.

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In line with other Asian emerging assets, Indonesian stocks and the rupiah strengthened on Friday (23/10). The positive performance is mainly on the back of more stimulus measures by key central banks. Yesterday (22/10), Mario Draghi, Head of the European Central Bank (ECB), said the ECB may increase stimulus measures at the December policy meeting to raise inflation and boost the economy of the Eurozone.

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As expected, Bank Indonesia cut the benchmark interest rate at its monetary policy meeting on 17-18 September 2024. The BI rate was cut by 25 basis points (bps) to 6.00 percent, while also lowering the deposit facility and lending facility rates by 25 bps to 5.25 percent and 6.75 percent, respectively.

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When global markets became really confident that the US Federal Reserve would cut its benchmark interest rate in September 2024, there occurred a sort of relief rally that is visible in Chart A below. Amid the increase in risk appetite, Indonesian stocks and the rupiah rate strengthened. Chart A shows that this rally started in late-July or early August 2024.

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Over the past month, expectations of a looming interest rate cut in the United States (US) have only grown. The US Federal Reserve is widely expected to start cutting its benchmark interest rate at its policy meeting scheduled for 17-18 September 2024. In fact, the question seems to be whether it’ll be a 0.25 or 0.50 percentage point cut.

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It is very interesting to take a quick look at the conclusions drawn at the latest US Federal Reserve meeting (held on 30-31 July 2024), as these conclusions have a big impact on global financial markets, including the Indonesian rupiah rate (and even on monetary policy of Indonesia’s central bank, Bank Indonesia).

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As usual, we are going to take a look at the US Federal Reserve’s monetary policy as policy changes in the United States (or market perceptions about approaching policy changes) impact on the Indonesian rupiah rate as well as on monetary policy that is set by Indonesia’s central bank (Bank Indonesia).

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In line with our projection, the central bank of Indonesia (Bank Indonesia) decided to raise its benchmark interest rate by 25 basis points (bps) to 6.00 percent after its October 2023 monetary policy meeting (held on 18-19 October 2023). Meanwhile, it also raised its deposit facility and lending facility by 25 bps, each, to 5.25 percent and 6.75 percent, respectively.

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At the latest monthly monetary policy meeting (held on 24-25 July 2023) the central bank of Indonesia (Bank Indonesia) decided to keep its benchmark interest rate (the Seven-Day Reverse Repo Rate) at 5.75 percent. The lender of last resort also kept its deposit facility and lending facility rates at 5.0 percent and 6.5 percent, respectively.

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At the latest monthly monetary policy meeting (held on 21-22 June 2023) the central bank of Indonesia (Bank Indonesia) decided to keep its benchmark interest rate (the Seven-Day Reverse Repo Rate) at 5.75 percent. The lender of last resort also kept its deposit facility and lending facility rates at 5.0 percent and 6.5 percent, respectively.

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In our previous report we expected to witness a calmer international context as the US Federal Reserve was assumed (by markets and most analysts) to have ended its monetary tightening phase.

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Last month, we saw that the Indonesian rupiah started appreciating when the world was focused on the US Federal Reserve’s response to the collapse of three American banks (followed by trouble at Credit Suisse).

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