One month before official hand over from the present Government to the next Government, marketplayers were focusing attention on the changing circumstance. Many rumors about economic policy in the period of transition would be marketplayer’s attention. The political tension in the post election had subsided, to be replaced by another tension between the Parliament of 2009 – 2014 era and the SBY Government.
The argument was triggered by the Red-and-White Coalition [KMP] who insisted that election system for Governors of the Provinces be exercised not on the basis of direct election system by the people but indirectly instead in House. Many circles objected the proposition as indirect voting by parliament was feared to injure democracy. People’s most fundamental right and guaranteed by 1945 Constitution would be fettered by the changed election system.
On the macro economy side there was notably no bad news except reaction to the increase price of 12 kg tube gas and the discourse on the increase price of subsidized oil by the next Government. In the short run, the market’s focus of attention was still on the policy stance or Thursday [11/9].
BI announced benchmark rate at 7.5% - un – changing since November last year. According to BI, benchmark rate at that level was still in line with inflation projection this year at 3.5% - 5.5% as an effort to reduce deficit in current transaction to a healthier level.
In the future BI warned that some great challenges are there to watch on. The world economy kept recovering, although structurally still weak especially in term of labor and productivity which was still low. The Fed’s monetary policy was predicted to run gradually, although it might happen in Q II or II of 2015.
In developing countries economy growth was relatively limited resulting in lowered commodity prices. Amids China’s economic growth which was notably stable, India’s economy was posting recovery while some central banks in Asia were increasing interest to control domestic inflation.
In the future BI must keep watch on a number of global and regional risks to protect national stability and growth. It was noteworthy that BI would not always rely on juggling with bank interest to respond to inflation, including if the next Government increased price of subsidized oil.
BI would use mixed instrument and coordinate with the Government to control inflation and second round effect of increased oil price. BI would take pre emptive measure to anticipate increase of oil price which would affect many aspects of life so bank interest would not be the only instrument used.
BI estimated that inflation would only increase by 1% if subsidy was increased by Rp. 1,000 per liter. The effect of inflation was only one-shoot inflation but the turbulence would subside in 2-3 months. On the other hand inflation was not BI’s only consideration in making interest adjustments. External balance like current transaction and capital flow would be considered too.
Previously some economists believed that BI rate needed not be elevated in case oil price eas increased by Rp. 1.000 by end of year. The point was that effect on inflation would be limited, beside BI rate was today way above inflation. Beside, BI saw that inflation up to August was still within target of 4.5% + 1% in 2014 and 4% + 1% in 2015. Inflation in August was posted at 0.47% [mtm] or + 3.99% [yoy]. Core inflation was slightly down to 4.47% [y o y]. Eased inflation was mainly supported by volatile food inflation and administered prices and well controlled core inflation.
In the future, BI must stay on the alert of various risks which might affect attainment in inflation controlling especially those originating from administered prices which would foster coordinative steps to control inflation. BI saw that this year inflation would come close to the inflation limited target of 4.5% + 1% including the effect of price increase of 12 kg LPG gas.
Rupiah value was posted to weaken by end of session last Thursday [11/9]. Rupiah was depreciated by 0.11% to Rp11,827 per USD. Through the day Rupiah moved in the range of Rp11,805 to Rp11,840 per USD. Data of Jakarta interbank Spot Dollar Rate [JISDOR] had it that Rupiah value was at Rp11,831.
Meanwhile Rupiah value against USD was opened to Rp11,820 per USD against the position on Thursday at Rp11,815 per USD. Some marketplayers were influenced by rumors that the US Central Bank, the Fed, would instantly increase bank interest so they tend to hold the USD.
Surprisingly development of monetary data at home was changing for the better. As noted Indonesia’s forex reserves by end of August increased 0.63% against that of end of July 2014. Increased forex reserves originated from export yields [DHE] of Government’s oil gas which exceeded expenditure for Government’s overseas debt payment.
Forex reserves by end of August was posted at USD billion while in end of July was posted at USD 110.5 billion. The position of forex reserves by end of August was enough for financing 6.5 month of import and payment of Government’s overseas debt which was safely above international adequacy of 3 month of import. Increased forex reserves had its positive impact on the efforts to strengthen the external sector and maintain sustainability of national economic growth.
Rupiah by last weekend [12/9] must have strengthened moderately at around Rp 11,800.- Rp 11,850 per USD. The domestic issue of price increase of subsidized oil by the next Government would strengthen market confidence on spit of increased inflation pressures at low degree.
Marketplayers would appreciate if the next Government increased price of subsidized oil to heal-then state budget’s structure of 2014 – 2015 so the would be more room for fiscal for building basic infra structure.
Not less important was the ultra low interest policy [minus 0.2%] in Europe which ha its result in entry of foreign capital to Indonesia’s moneymarket because the offered higher yields.
The Capital Market
Unlike Rupiah which tend to be under pressure index of IHSG at BEI during transaction on Friday [12/0] was open to strengthen by 0.04% to 5,135.11. Meanwhile index of LQ 45 inched up by 0.5.519 points [0.06%] to the level of 869.549. Generally speaking IHSG movement was relatively flat in not-too-wide span. Marketplayers tend to wait until mover catalyst came by.
After weakening for a few days IHSG during opening session on Thursday [11/9] strengthened by 21.97 points to the position of 5, 164. Even during closing in afternoon session strengthened by 23.34 points to the position of 5,167. However during closing session on Thursday [1/9] IHSG again weakened by 9.96 point to the level of 5,133.
Weakening of IHSG was followed by weakening of LQ45 by 4.40 points to the level of 869.03. the same was with Index of JII which weakened by 5.33 points to the level of 683.32 points. Most of the monitored sectors were posting weakening. The agricultural sector was posting worst weakening at 23.06 points to the level of 2,114, followed by the mining sector which weakened by 12.36 points to the level of 1,557. The infra structure sector weakened by 5.34 points to the level of 1,66.
The volume of trade transaction today was posted at 4.986 billion lots at the value of Rp4.626 trillion. 176 shares strengthened, 139 weakened and 92 shares were stable. All in all IHSG slipped into the red zone toward closing session. Act of selling by foreign investors was inevitable.
Weakening of index was on account of Rupiah being on the downturn, while movement of the regional shares was overshadowed by fear that the Fed would increase benchmark rate sooner than previous expectations. Investors were also analyzing the effect of stimulus by the European Central Bank [ECB]. Global investors were also waiting for the monetary policy to be adopted by the Fed in FOMC on Tuesday [16/9] and Wednesday [17/9].
Meanwhile stockmarket in Asia were moving the mixed way, only China’s stockmarket inched down. Regional Marketplayers were still waiting for a positive sentiment. Index of Nikkei 225 inched up by 52.84 points [0.33%] to the level of 15,962.04 points [0.14%] to the level of 24,698.36. Index of Composite Shanghai inched down by 1.69 points [0.07%] to the level of 2,309.99. Index of Straits Times increased by 6.18 points [0.18%] to the level of 3,353.46.
Meanwhile index of Wall Street was not fully recovered, only index of S&P and Nasdaq strengthened. Index of Dow Jones was corrected due to selling pressures. Increase world’s oil price made energy-based shares to be uplifted. Price of Brent oil increased by more than 3% this month. Increased oil price uplifted share price.
The sudden increase of unemployment data brought pressures on market movement at early session. It made investors wonder if trading was moving upward or downward. During closing session on Thursday [11/9] index of Dow Jones weakened by 19.71 points [0.21%] to the level of 17.049. index of S&P 500 increased by 1.76 point [0.09%] to the level of 1.997.45 and index of composite Nasdaq grew by 5.28 points [0.12%] to the level of 4,591.81.
Index of Stoxx Europe 600 reflected Europe stockmarket which also dropped by 0.3%. Europe stockmarket was on the 5th day of downturn as Europe’s officials stated they would put sanction on Russia by blockading access to corporate capital in Europe.
The commodity market was also weak. Brent oil was now the cheapest oil since 2002 admist speculation on increased stock of oil. International Energy Agency [EA] axed projection of global demand one day after OPEC also axed the supply prospect.
Meanwhile investors saw inflation in China last August was the lowest in the past 4 months. MSCI Emerging Markets Index the reference index in developing countries was in the sixth day of downturn. These were all under one umbrella, so the economic slowdown in China could lash effect on US economy. Act of IEA axed projection of demand for oil, inflation slowdown in China, and new sanction by Europe Russia, signaled act of selling in the market.
At home BI’s consumer survey showed that consumer’s confidence strengthened slightly in August 2014. Consumer’s Confidence Index [IKK] was posted at 120.2, up by 0.4 points against previous month which injected positive sentiment for marketplayers.
The reasonably strong consumer’s confidence was supported by bettered Economic Condition index today [IKE]. In line with consumer’s perception on better employment opportunities. Such PAGE was reflected in index of employment opportunity which increased by 5.7 points to become 103.2, the highest in the last 4 years.
Enrollment opportunity for Civil Servant Candidates on August 12, 2014 was predicated to improve consumers’ perception of employment opportunities today compared to 6 month before.
Besides, survey outcome also unveiled that consumers estimated that prices would increase especially in November 2014 particularly in the categoris of transportation, communication and financial services. Consumers were also expecting prices would increase in February 2015 which was triggered by consumers’ anxiety in regard to Government’s plan to axe subsidy for oil.
The only thing was that stockplayers must pay special attention on Government policy of state owned enterprises [BUMN]. Word was out that the Government was expecting higher dividend from BUMN whereby to secure targets in RAPBN 2015. The Government would focus attention on BUMN. Still the Government would be considerate in expecting dividend from BUMN so their expansion plan would not be affected.
Today the ministry of BUMN of BUMN was optimistic he would meet the target of collecting BUMN dividend to become Rp41.7 trillion in 2015. In RAPBN Budget 2015 target of BUMN dividend became Rp41.73 trillion.
However the development of political climate at home would indirectly affect Rupiah and IHSG. It was not impossible that investors would make a stance to do profit taking for safety’ sake. The political factor could be something like debate over what sort of system would be applied for Regional election [Pilkada]
If it was decided that election would be exercised through the Parliament, the market would tend to perceive it negatively. House’s decision about Pilkada [regional election] would be made on September 25, 2014. Political analyst agreed that Pilkada could democratically be exercised by open and direct election by the people. To change the system means regress of democracy in Indonesia.
During closing session last week [12/9] IHSG was predicted to strengthen in the range of 5,135 – 5,160 and continued to strengthen to the level of 5,150 – 5,200 especially with entry of foreign capital from Europe. (SS)
Business News - September 17, 2014