Stock Market Indonesia Update: French Election, Oil Price & US Jobs
It should be a great day for Indonesia's benchmark Jakarta Composite Index on Monday (08/05). Several factors are pushing Indonesian (as well as Asian and global) stocks further into green territory. Firstly, Emmanuel Macron's victory in the French presidential election removes concern about stability of the European Union (EU). Secondly, strong US jobs data indicate further US economic growth ahead. Thirdly, the crude oil price is showing a steep recovery so far today. Lastly, Japanese stocks - after ending last week's holiday - are surging, hence being a good reference point for other Asian markets.
Whether these conditions are enough for the Jakarta Composite Index to touch a new all-time record high (that was set on 26 April 2017) later today remains unsure. But we are certainly close to a new record. By 09:55 am local Jakarta time on Monday (08/05) the Jakarta Composite Index had risen 0.58 percent to 5,716.49 points, while the Indonesian rupiah had appreciated 0.07 percent to IDR 13,320 per US dollar (Bloomberg Dollar Index).
Not only Indonesia, but most Asian stocks are surging on the first trading day of the week. As such, Asian stocks are following the optimistic mood of US and European stocks on Friday (the S&P 500 and Nasdaq each gained 0.4 percent to finish at new records).
On Friday the US Department of Labour reported that US employers added 211,000 jobs in April 2017, while the US unemployment rate fell slightly to 4.4 percent. This was good news after weak jobs data in the preceding month. And despite bleak US GDP growth in Q1-2017 (a quarter that is often subject to data distortions), the US Federal Reserve said it believed any slowdown in GDP is only temporary nature and the fundamentals of the economy remain strong. With this context in mind we expect the Fed to stick with its plan of implementing two more interest rate hikes in 2017.
Although monetary tightening in the world's top economy "should" have a negative impact on emerging market assets in Asia (including Indonesia), as we saw in 2013 and 2015, markets are now less volatile because they are confident that the monetary tightening path of the Federal Reserve is a very slow and gradual one, allowing investors more time to benefit from higher-yielding emerging market stocks.
Meanwhile, Japanese stocks are trading at a 16-month high on Monday as they are making up for lost time after last week's holiday. Particularly Japan's energy stocks are surging after a strong recovery in crude oil prices.
Stocks and currencies (presumably European stocks and currencies particularly later today) are also positively affected by the sound victory of Emmanuel Macron in the 2017 French presidential election, defeating far-right candidate Marine Le Pen. Macron is pro-EU and therefore we will not see a so-called "Frexit" after Great Britain had already decided to exit the EU last year.