Weekly Market Review (30 Oct) - What happened & What's next?
- In last week, amid softening net foreign outflow (of only IDR73bn), JCI rose by 0.8% to 5,975. The positive movement was in line with positive global markets direction which were driven by favorable 3Q earning announcement and dovish ECB decision. Within JCI, mining (+4.6% wow) served as the best performers amid 1.4% wow increase in coal price, while miscellaneous industry (-0.8%) performed the worst in anticipation of unfavorable 3Q resutls. Newsflow to be watched within this week including policy rate decision from Fed and BOJ and manufacturing PMI announcement globally. We also need to watch on US tax reform development and decision on next Fed chair position.
- In last week USD index (DXY) strengthened by 1.3% wow in tandem with strengthening US 10 year government bond yield which rose from 2.38% to 2.46%, before closed at 2.41% on the end of the week driven by latest news surrounding the decision of the next Fed chair. Consequently USD also strengthened against IDR (+0.7% wow, closed at IDR13,609) and other emerging market currencies.
- In last week bond market started with low trading volume, but concern about The Fed Chair changes turned investor into selling mode and pushed Bank Indonesia to intervene to stabilize bond market. 10 years yield increased from 6.61% to 6.82% and 20 years yield increased from 7.34% to 7.44%.
- Last week has been full of political news. The first came from China which just concluded its 19th national congress of the Communist Party of China. The key takeaway is the result has solidified Xi Jinping grip within the party. Market may view the result positively as stronger Xi’s influence means higher stability and better effectiveness in reform and policy implementation.
- From Japan, Prime Minister Shinzo Abe's ruling coalition secured a two-thirds "super majority" after winning 312 out of 465 seats available at Sunday's election. Abe's solid win at the polls points to a continuation of fiscal and hyper-easy monetary policies under his Abenomics program, hence also a positive news in the view of investors.
- While negative news come from increasing tension in Spain as Catalonia unilaterally declared independence.
- From monetary side, ECB decided to keep its benchmark rate while announcing a soft tapering version by extending bond purchase to Sept 2018, with half monthly size of EUR30bn starting January next year.
- On Fed chair development, there are five candidates reportedly being considered for the position which include Fed Governor Jerome Powell, Stanford economist John Taylor, current Fed Chair Yellen, National Economic Council Director Gary Cohn, and former Fed Governor Kevin Warsh. Recent newsflow indicated Trump had narrowed down his choice into Powell (more status quo/moderate) or Taylor (more hawkish, may speed up rate tightening). It can also be the combination of those two (one as chair and one as vice chair)
- From US, all economic data shows solid growth indication with first release of US GDP came at 3.0% (higher than expectation at 2.6%) and Markit manufacturing PMI came at 54.5 (higher than expectation at 53.4). Initial jobless claim also came slightly below expectation at 233k (vs consensus at 235k)
- The parliament has approved the 2018 budget with only small revenue and expenditure tweaks, ~1% higher vs. proposal. Revenue is +9.1% YoY (2017: +11.6%), spending is +5.8% YoY (2017: +12.8%), and the deficit is -2.19% of GDP (2017: -2.7%). Less aggressive revenue progression has made budget planning more realistic, thereby reducing the shortfall risk over time, although this also means potentially softer baseline spending.
- The Ministry of Manpower regulates the +8.7% increase in 2018 minimum wage, based on a GDP + inflation formula (2017 regulation: +8.3%). Jakarta, nevertheless, will first conduct a living cost survey before deciding, reportedly next Tuesday. The new Jakarta authority has previously made a political contract with Jakarta Labor Coalition to raise wages by more than the formula suggests. Meanwhile, the labor union is demanding a ~20% raise to ~Rp4mn/month
Foreign net purchases of Indonesia equities