RUPIAH AND IHSG HAUNTED BY OIL PRICE POLICY

In the near future the government planned to increased oil price. Rumors had it that the new price would be Rp.6, 500 per liter. The current price was Rp. 4,500.-per liter for premium and diesel [solar].

               

The increased oil price would definitely lifted up inflation, although at narrow range. However, in the chain effect could not be controlled, inflation might turn wild. This could be dangerous because it would force BI to increase BI rate. If this happened, almost certainly bank interest would increase. Consequently the policy of subsidized oil price would hold back economic growth.          

Naturally the market would react to the increased oil price in the near future. Word was out the may would be the month of announcement.

               

The Money market

               

Rupiah was again tested of its strength against external pressure last week [19/4]. Rupiah value was predicted to move on the range of Rp9.710 – Rp9.720 per USD. During transaction on Thursday [18/4] rupiah was closed to slump to Rp 9,716 per USD rupiah strengthening was limited and stabilize with tendency to weaken.

               

Rupiah struggle was not showing any sign of escape from pressure originating from uncertainty of global economy, with forced investors to transfer their assets to USD as save heaven. Even this week rupiah moved with tendency to weaken.

Growing risk aversion sentiment at the global market as related to the condition in Europe was predicted to escalate USD. Bank Indonesia planned to protect rupiah to make it move according to its fundamental nature.

The easy closing of rupiah over the past eek was triggered by statement of a leader of the ECB Jens Weidman who was also Governor of the German central bank who stated his support for ECB in lowering their interest further in case economy worsened.

Weidman’s statement was dovish enough to make USD strengthen significantly. Accordingly over the past week rupiah was at its weakest level of Rp9,740 and strongest level of Rp9,715 per USD per USD. Usually the German central bank did not wish ECB to ease monetary any further. Therefore Weidman signaled Germany’s worsening economic condition which needed further monetary easing from ECB to uplift their economy.

Moreover, Weidman was against the stimulus proposition by ECB especially in regard to buying of outright monetary transaction [OMT] bonds so his dovish remark came as a shock to the market. Notably rupiah weakening was not too extreme in Lin with better sentiment in Asian session. 

Data of foreign investment in china which strengthened and index of business confidence in Australia had eased negative pressures on rupiah. Foreign investment in China rose by 1.4% against the previously published -1.4%. The same was with business confidence in Australia which rose from -5 to 2.

What’s more, auction of Spanish bonds was quite positive for tenure of 10 years. The yield dropped to 4.89% against the previous 4.61% the same was with bid-to-cover ratio which rose from 1.9 X to 1.6 X. All in all USD value inched down against most of the leading currencies including Euro. USD index slumped to 82.59 against the previous 82.64. Against Euro, USD weakened to USD 1.3047 against the previous USD 1.3034 per Euro.

As known, a number of US initial data showed downturn. This was responded with downturn of the stock market in America. Conference board in their 3 to 6 months report exposed leading economic indicators of around 0.1 % in March. This was the first downturn since august 2012 last. Downturn of US economy was also observed by the Philadelphua central bank which reported factory index to drop to 1.3 by April against the precious 2 months.

The two signals strengthened the prediction that US economic slowdown was the after affect budget slashing which was feared to lower household spending. However, Bloomberg comfort index rose steeply last week, the highest in a year. IMF axed America’s economic growth from 2% to only 1.9% in this year 2013

For this week, pressures on rupiah was believed to come from oil price increase which – based on a two price scheme was feared to boost inflation to the highest level in 22 months in March. Increased oil price to private cars would contribute to inflation by 0.2%. To lessen subsidy would accelerate inflation and weaken rupiah for the short run, although it was positive for fiscal position in he long run.

BI’ protection was expected to ease pressures on rupiah. BI was expected to be anticipative by holding back further downturn. In fact there was good news for rupiah there was optimism among investors that indonesia’s export would increase after IMF predicted increase in Japan’s economic growth. Based on their data IMF predicted that Japan’s economic would increase by 1.6% this year, an increase of 1.2% against previous prediction. Japan is one of indonesia’s main business partners.

However, rupiah’s strengthened process might be obstacle after IMF also predicted that France Woul fall into recession this year. France was the second strongest economic power next to Germany in the Euro zone. France was predicted to have economic contraction by 0.1%.

In their latest revision IMF revised their prediction for France. This year IMF predicted France would post economic growth of 0.3% and would not be better until 2014 with 0.9% growth. France economic growth was predicted to be negative in 2013, with combination of fiscal setback, bad export performance, and low trust.

The latest IMF estimate was more pessimistic compared to that of the French government who set target for their public deficit below Uni Europe’s level at 3.0% in 2014. In line with the Europe commission, the government of 0.1% this year and 1.2% in 2014.

If the economy of France weakened, it would bring negative sentiment on Euro; which would result in positive sentiment on USD. At this point rupiah could be dragged downwards. It seemed reasonable if rupiah this week would be in the range of Rp9,690 –Rp9,730 with tendency to weaken.

The Capital Market

The Asia stock market last Friday [19/4] appeared varied with tendency to inch down in response to negative sentiment form the global stock market. Meanwhile the US and European stock market were continuing corrections in line with released US economic data which was worse than expected and created bad expectations of US economy.

Data of leading economic indicator in America shockingly dropped by 0.1% after constantly rising for the past 7 months. Meanwhile prices of world commodity was on the rebound in line with USD weakening with price of oil strengthening by 1.2% to the level of USD 87.7 per barrel followed by majority of world’s metal price.

Wall Street stock market was again corrected following eminent mixed report. Weakening was also due to disheartening US economic data. Early last week IMF already axed prediction of global economic growth. The fed’s report on the banking situation was also unsatisfactory. The bad news brought pressures on shares all through the sessions.

May shares of the technological sectors were corrected. Apple slumped by 2.7%, Google lost 2.1%, IBM lost 1.2% and Microsoft inched down 0.1%. Other eminent which had reported their unsatisfactory performance were also corrected, such as in the retail, financial and commodity sectors.

During closing session last Thursday [18/4], index of Dow Jones slumped by 81.45 point [.56%] to the level of 14,537.14. Index of S&P weakened by 10.40 point [0.67%] to the level of 1,541.61, while index of composite Nasdaq lessened by 38.31 points [1.20%] to the level of 3,166.36.

Meanwhile movements of regional shares up to Thursday [18/4] were varied. Index of composite shanghai rose by 3,81 points [0.17%] to the level of 2,197.60. Index of hang seng weakened by 57.15 point [0.26%] to the level of 21,512.52 Index of Nikkei 225 dropped by 162.82 points [1.22%] to the level of 13,220.07. Index of straits times inched down by 0.55 points to the level of 3,290.91

Even index of IHSG at the Indonesia security exchange [BEI] which were high valued dropped due to act of profit taking. Lack of new positive sentiment disadvantaged IHSG, considering that it had strengthened by 2,4% in the past 3 days last week after breaking through the psychological level of 5,000. What was feared was acts of profit taking last week end. Predictably IHSG during closing session last week end [19/4] would be in the range of 4,975 – 5,000.

For this week, the issue of oil price increase would overshadow IHSG with tendency to stagnate in the range of 4,985 – 5,015. It was still necessary to watch over potential corrections on sectors which had strengthened significantly over the past week like cement, telecommunication, construction and banking. Pressure heightened as index rose in some previous transaction to break through the psychological level of 5,000.

Last week [18/4] IHSG was closed to increase by 13.99 points [0.28%] to the level of 5,012.64 including transaction of 13 million lost or equal to Rp6.7. trillion. Foreign investors were doing net buying at the regular market to the amount of Rp355 billion

Attainment of the psychological level was posted when foreign capital flowed back heavily to the local stock market. Foreign investors took to net buying aggressively to as high as Rp600 billion. However the 5,000 was felt as no big deal, because IHSG actual target was between 5,250 to 5,600; meaning, strengthening was still going on.

The only thing was that the process of IHSG was short term whether in terms or regional stock market, commodity prices and domestic inflation. Therefore to take a long term position, it was better for investors do it when IHSG descended in tandem with corrections at the regional stock market. To force a long term position would mean bigger risk.

Above everything, to secure their investment, it was advisable for investors to do profit taking for the short term especially of overbought shares. Furthermore, what must be watched on was the issue of oil price increase which influenced greatly the sectors of transaction, banking, property, construction, and automotive. Those sectors were highly capitalized but relatively not showing much increase.

It was noteworthy that the government’s plan to withdraw subsidy for oil which would make price to reach Rp 6,500 per liter did not shatter the local stock market, investors even tend to accept stock players moves. One thing was sure now domestic investors were focused on shares which were domestic oriented in line with indonesia’s economic growth amidst negative external sentiments.

Global economic growth was on the slow down with tendency to slump so investors in Indonesia were highly expectant of domestic consumption which soon would have the impact on eminent. Besides, investors were also anticipating financial performance of the first quarter this year and corporate agenda such as distribution of dividend.

Players of the automotive sector were not afraid of the government’s plan to increase oil price. Lessened sales of cars due to restricted use subsidized oil would have its impact for at least one year after realization of the discourse.

The government’s plan to increase oil price by early may 2013 had negative impact on eminent share of infra-structure. Nevertheless, shares of the toll road and construction sectors were rated by analysts as still prospective to be collected by investors till end of this year. However investors were pled to monitor the projections of per share profit growth from eminent of the infra-structure sector. Index of the infra structure itself by year-to-date was still positive at 13.86%. (SS)

Business News - April 24,2013