The S&P 500's decline throughout September was the worst after the March 2020 market crash

The United States market, the S&P 500, continued its decline which was still caused by the increase in interest rates by the Fed some time ago. The S&P 500 fell by -2.91% over the past week, and -9.34% over the month of September. This September's performance was the worst after the decline in the March 2020 market crash at the start of the pandemic. Investors are hoping for a good third-quarter earnings report as a catalyst to reverse the market's course. However, analysts' expectations are not very positive when they see reports of high inflation and the strengthening of the US Dollar, which could actually have a negative impact on the company's revenue.

Indonesia's economic growth is positive, supported by the commodity boom

Domestically, the Fiscal Policy Agency estimates that Indonesia's economic growth will be above 5.4% in 3Q22, supported by the commodity boom cycle. The impact of the commodity boom is still reflected in the realization of the state budget as of August 22, with the fiscal balance remaining in surplus at IDR 107.4 trillion. This surplus was supported by state revenues which grew higher than spending. State revenue reached IDR 1,764.4 trillion, growing 49.8% y-y or equivalent to 50.3% of the target of IDR 2,266.2 trillion, while government spending reached IDR 1,657 trillion or growing 6.2% y-y.

Bank Indonesia projections for Indonesian inflation in September

Bank Indonesia projects that inflation in September will be at 5.88%. According to BI calculations, commodities that contributed to inflation were largely contributed by oil prices which increased 0.91% higher than the previous month. Apart from that, BI also stated that if inflation rates continue to increase, BI will deploy monetary policy to reduce inflation rates until the end of the year.

Key Takeaways:

The S&P500 experienced its deepest decline since March 2020. The S&P 500 fell by -2.91% last week, and -9.34% throughout September. This is still caused by the effect of the increase in the benchmark interest rate by the Fed. Outlook analysts in the US expect a third-quarter report that will be better and turn the market around. However, macroeconomic conditions that are less supportive in terms of high inflation will have a negative impact on company revenues in the US.

The Fiscal Policy Agency (BKF) estimates that the Indonesian economy will still grow above 5.4% in 3Q22, supported by the commodity boom. This condition also keeps the fiscal balance in a surplus position of IDR 107.4 trillion, which means state income is greater than state expenditure. State revenue reached IDR 1,764.4 trillion and state expenditure was IDR 1,657.4 trillion.

Still from within the country, Bank Indonesia projects that annual inflation will grow by 5.88%, with the increase in the price of subsidized fuel oil increasing by 0.91% on a monthly basis. BI is of the opinion that if inflation continues to increase, BI as the central bank will focus on reducing the inflation rate until the end of the year. The monetary policy referred to by Bank Indonesia (BI) is contractionary monetary policy, where this policy is carried out in order to reduce the amount of money in circulation and when the economy experiences inflation. One of the policies that has been implemented this year is BI's policy of increasing the benchmark interest rate.

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