Sunday 7 July 2013

MARKET OBSERVE MACRO INDICATORS



Macro economy and monetary indicators in quarter two brought negative sentiment on Rupiah or stock market. Rupiah value tends to weaken, and so was IHSG at BEI security exchange.
               
To refer to BI’s decision to maintain benchmark rate at 5.75% at the Board of BI Governors meeting in the first week of May, it was apparent that Indonesia’s monetary and macro economy condition was relatively stable.
               
However national economy was still burdened by energy subsidy which swelled amidst uncertainty of Government’s oil pricing policy. This was in fact the focus of attention of market players who brought negative sentiment to the market. Negative sentiment would continue to overshadow the market as long as the Government was indecisive about lifting subsidy for oil.

The Money Market
               
During closing session last Thursday [16/5] Rupiah value against USD inched down by 2 points [0.02%] o the position of Rp9, 750 against the previous position of Rp9, 745. Rupiah’s tendency to weaken was triggered by Indonesia’s current transaction account which by quarter I-2013 posted deficit of USD 5.3 billion or 2.4% of GDP.
               
The figure was betterment against deficit of the previous quarter at 3.5% of GDP. Thankfully Rupiah weakening was also limited. Over the sessions, Rupiah reached its weakest level at Rp9, 756 after reaching strongest position at Rp9, 740 per USD.
               
Furthermore Indonesia’s current transaction was showing downturn. The condition indicated downturn of Indonesia’s competitiveness at the export market. Such a condition was not only apparent in Indonesia but also in other Asian countries. On the other hand current transaction in Europe and the USA was signaling increase.
               
Meaning there was a process of balancing of Euro and USD lately which jacked up their trade balance. In addition to the above, pressures on Rupiah was also due to risk aversion attitude at the regional market which triggered strengthening of USD especially after steep downturn of US Industrial Production to become minus 0.5% below the estimated minus 0.1%. A figure of the previous month was also revised to be lower toward 0.3%.
               
In addition to the above manufacturing index in New York fell to minus 1.4 of the predicted 3.6. US economy was also showing manufacturing activities which showed contraction in New York. Previously many GDP of the Euro Zone was in bad shape. Global adverse economy of today automatically increased demand for USD by local importers; besides USD was still regarded as safe haven.
               
When there was risk aversion, the markets tend to seek for safe haven currencies like the USD, although even the USD Fundamental was not too good. But since Euro was also negative, people still turned to USD. Moreover investors were looking forward to economic rebound in the USA toward end of 2013 considering that data of the US labor market was getting better    .
               
About the outlook of the Fed’s monetary policy, they were only central bank who considered canceling stimulus as economic betterment was in sight, which supported strengthening of USD and posed as negative pressure on Asian currencies including Rupiah.
                 
On the other hand the Central Bank like the European Central Bank [ECB], Bank of Japan [BoJ] or Reserve Bank of Australia [RBA] was just starting to run monetary easing. From this point alone it was reasonable for investors to assume strengthening of USD. All in all USD strengthened against most of the main currencies including Euro. Index of USD strengthened by 0.04% to 83.39 against the previous 83.88. Against Euro, USD strengthened to USD 1.2874 per Euro against the previous USD 1.2897 per Euro.
               
Last week end [17/5] Rupiah value against USD at the inter bank spot market weakened. This was because investor’s perception of the money market was still negative and also because the market feared capital outflow as the consequence of profit taking at the stock market when IHSG was under correction. These factors had the potential of suppressing Rupiah. Therefore there was room for weakening for Rupiah up to Rp9, 800 while the potential of Rupiah weakening was in the range of Rp9, 7540 per USD.
               
Correction over Indonesia’s stock market was triggered by the valuation factor which was rated by the market as too high; moreover IHSG was at the point of overbought: the IHSG index target of 5, 100 to 5,000 was supposed to be projection for year end but it was attained sooner so IHSG was rated as being overvalued. Such was the factor that started capital outflow, driven by act of profit taking.
               
From the perspective of fundamental economy, capital outflow was triggered by Indonesia’s current transaction which constantly booked deficit, weakening fundamental economy and effect of global monetary policy which was accommodative to monetary easing.
               
Last week BI set benchmark rate in May to settle at 5.75%. Meaning for the 15th time the Monetary Authorities maintained BI rate at the same level. This BI rate was rated still synchronous with inflation target of 2013 and 2014 at 4.5% + 1%. Although consumer’s price index [IHK] was having deflation in April 2013, BI remained to keep watch on inflation pressures originating from increased expectation in relation to new oil pricing policy to be exercised by the Government.

BI also planned to continue enhancing monetary operations through absorbing greater liquidity in longer tenure. Stepping up of monetary operations was meant to support stabilizing effort of Rupiah in parallel with fundamental economy. This policy was strengthened by follow up measures for controlling the money market, especially foreign currency, among others by publishing reference Rupiah dollar exchange rate at the spot marketing the near future.

What comported the market was the fact that in the future BI would keep watch over some risk of inflation or exchange rate value and would adjust monetary policy to situations whenever deemed necessary. For information, on February 9, 2012 BI lowered rate to 5.75%. BI predicted inflation all through the year would reach 7.5% - 7.8% if subsidized oil price were increased. Even the issue alone would be in the range of Rp 9, 750 – Rp 9, 810 per USD.

The Capital Market

At the stock market, many analysts were skeptical about BEI index making a new record. Evidently, during trading last Thursday [16/5] IHSG was closed to weaken by 11.20 point [0.22%] to the position of 5,078.678. The lowest intraday was 5,076.971 and the highest was 5,113.139. Meanwhile the position of regional stock market was also not too positive. Hang Seng Index [HSI] was still closed below resistance and under gap 23,053-32.156 the regional stocks market themselves moved mixed and varied. And yet the regional stock market itself had positive sentiment from Japan’s GDP growth which was above expectation. On the other hand, lack of positive sentiment at home made investors turn to acts of profit taking toward closing session.
               
Last weekend [17/5] IHSG was projected to consolidate with tendency to weaken in the range of support 5, 045 and resistance 5,085. Economic data and signals from the Fed had suppressed strengthening of US stock market.
               
Index of Dow Jones inched down by 0.2% to 15,233.22 and index of Nasdaq also dropped by 0.15% to 3,465.24. Weakening of US stock market as unemployment data touched the highest level, i.e. 360,000 in six weeks. In addition to that data of mortgage fell steeply in April. Building of new houses dropped by 16.5% in April to become 853.000 units.
               
Index of Dow Jones came close to its lowest level last weekend as rumors spread that the US Central Bank might reduce monetary policy in summer. Bonds buying might also end if the labor market were showing improvement. Previously, some officials of the US Central Bank stated that the central banks must reduce asset buying as per June.
               
Although IHSG last week p17/5] was corrected over the week IHSG stood the chance to strengthen the limited way at 5,050 – 5,110 with median index of 5,070 due to positive sentiment from many shares which tend to move up or the price was still low.
               
Shares of the construction, food & beverages and retail sectors remained to be investor’s backbone. The three sectoral shares were recommended trading buy as they were still not overbought. Meanwhile shares of the automotive and transportation tend to be avoided for the time being while waiting for the Government’s oil pricing factory.
               
As know, increased price of oil would increase price of goods and services, which would be scarce in some regions. This was because increased oil price would increase transportation cost of goods in some regions.
               
As transportation cost increased, prices goods had to be adjusted. The condition triggered inflation and increase of interest. This condition had negative impact in the banking sector.
               
Index was also influenced by US stockmarket as the US Government released data of initial job claim which was predicted to increase from 325 people who would claim benefits up to 330 thousand. The fact was that initial job claims buoyed 32 thousand way above the expected 360 thousand on May 11 last.
               
The data was quite influential on investors because it would uplift unemployment data in the USA. If the joblessness was seen to increase, most probably unemployment would also increase; in the end it would affect America’s GDP. The market would also respond to inflation level in the USA which was predicted to descend from 1.5% to 1.4%. (SS)



Business News - May 22,2013

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