Market update

• Global equities recovered some losses from previous weeks, driven by positive development on US fiscal stimulus front. Earlier last week, President Trump called for stimulus negotiations to stop until after election day. He then reversed his decision and said that he is willing to sign a standalone bill for another round of USD 1,200 stimulus checks, renew payroll assistance for airline and paycheck protection program for small businesses. On Friday, the White House took a new stimulus offer to Democrats that cost USD 1.8tn (higher than previous offer of USD 1.5tn). Yet, the amount is still less than the USD 2.2tn bill put forwards by Democrats. President Trump then made another comment to radio host Rush Limbaugh that he would like to see a bigger stimulus package than either Democrat and Republican offering hours after signing off on the offer that costs USD 400bn less than the Democrats’ plan. On domestic side, JCI also booked a gain of +2.6% WoW last Friday, boosted by the passing of Omnibus Law. All sectors were in the green territory except for property which was down by -4.1% WoW. On the other hand, financial was the biggest outperformer up by +4.7% WoW. Newsflows to be watched this week: US inflation rate, US import and export, US initial jobless claims, US retail sales, US industrial production, CN FDI, CN trade balance, CN inflation rate and ID trade balance.
• Rupiah strengthened by +1.1% WoW to USD/IDR 14,700, in line with other EM countries. On the contrary, DXY index weakened by -0.8% WoW to 93.1.
• Indonesian government bonds yield decreased by 1-5bps along the curve with 10y yield relatively unchanging from last week at 6.88% (-0.01% WoW). Meanwhile, yield on 5y tenor decreased the most, down -5bps. Indonesian asset classes movement were mostly driven by the approval of Omnibus Law. Despite of Omnibus protests that occurred in Jakarta and several areas, Rupiah and bond market did not lose ground. On a separate note, government issued another 4VR bond series through private placement with Bank Indonesia (BI) which amount was IDR 46.2tn. With this additional issuance, the government has issued a total of IDR 229.68tn bond for burden sharing program with BI.
• Total demand rebounded on Tuesday conventional auction to IDR 49.5tn from previous auction demand at IDR 46.1tn. The biggest increase was seen in 10y and 20y while demand for others remained the same. This shows foreign flows starting to enter Indonesia bond market. In addition, government issued IDR 26.1tn bond, higher than initial target of IDR 20tn.
• Based on DMO data, foreign ownership as of 8th of October was at IDR 939.08 (+4.98tn WoW).
• Global market participants remained uncertain as the prospect of US fiscal stimulus is still unclear. Besides that, September FOMC meeting minutes that was released last week signaled that the Fed is in no rush to tighten its monetary policy. As a result, UST 10y rose by 9bps to 0.79% from the previous week.

Global news

• US non-farm payroll added 661k jobs in Sep-20, missed expectation of 850k . On the other hand, unemployment rate improves from 8.4% in the previous month to 7.9%, beating expectation of 8.2%. i
• US ISM manufacturing PMI declines from 56 in Aug-20 to 55.4 in Sep-20. The number is also lower than consensus’ expectation of 56.3.
• US initial jobless claims edged lower last week to 837k from 870k in the previous week. Beating expectation of 850k but remained elevated compares to pre-covid level.
• China Caixin PMI service rose to 54.8 in Sep-20 from 54 in the previous month. The number is also better than consensus’ estimation of 53.

Domestic News

• Jakarta Governor has decided to release the emergency brake and re-implement transition phase large scale social distancing (PSBB transisi). 11 essential sectors can operate as needed (vs previously at 50%). Non-essential offices can increase capacity from 25% to 50%. In addition, dine-in can open at 50?pacity while gyms and cinemas are allowed to operate within 25?pacity.
  
• Omnibus Law was passed by the government and the House of Representatives last Monday. The law aims to improve bureaucratic efficiency and cut red tape, particularly in regard to business permits and investment. One of the key changes is in Labor Law, which altered the formula for minimum wages and severance pay. The calculation of minimum wage now has to be set by Governor, depends on the real GDP rate and/or inflation rate for each provinces or cities. In addition, maximum severance pay was reduced from 32 months to 25 months.
• Government plans to import 100mn doses of AstraZeneca covid-19 vaccine. They have allocated IDR 3.7tn budget for 50% down payment.

Calendar

October 2020

Foreign net purchases of Indonesia equities