Positive Sentiment towards the Fed's Policy, S&P 500 strengthens 2.47%

The United States stock market, the S&P 500, closed up 2.47% throughout last week's trading. Market players have changed their views on the Fed. Previously, the market assumed that the Fed would continue to take aggressive action to slow the economy. However, as inflation decreases, the consensus now anticipates a smaller policy increase in interest rates, namely 25 bps (0.25%). Nine of the eleven S&P 500 sectors closed higher, with the largest increases in the Consumer Discretionary sector at +6.38%, the Technology sector at +4.07%, and the Communication Services sector at +3.28%.

Money Supply Growth in December 8.3% YoY

Indonesia's economic liquidity indicator or money supply (M2 Money Supply) in December 2022 was at IDR 8,525.5 trillion, experiencing growth of 8.3% YoY, slightly slower than growth in November of 9.5% YoY. The development of M2 in December 2022 was mainly influenced by the development of net foreign assets which recorded positive growth of 4.9% YoY, higher than the previous month of 1%. The total incoming foreign assets in December amounted to USD 0.3 billion. Foreigners increased their position in state bonds by USD 1.6 billion, and exited shares by USD 1.3 billion. Meanwhile, credit distribution in December 2022 grew 11% YoY, a slight increase compared to growth of 10.9% the previous month, in line with developments in productive and consumer credit. Meanwhile, in terms of net domestic assets, there was a slowdown compared to the previous month due to a decrease in the amount of state expenditure.

BI Increases Interest Rates to 5.75%, Last Possible Increase for 2023

Bank Indonesia again raised its benchmark interest rate by 25 bps to 5.75%, in line with consensus expectations. According to BI, this increase is needed as a preventive measure to deal with global economic turmoil in order to maintain the inflation rate and the rupiah exchange rate. Bank Indonesia predicts the inflation rate for 2023 will be 2-4%, lower than in 2022. So far BI has raised interest rates by 225 bps (2.25%), the BI Board of Governors, Perry Warjiyo stated that the current level is sufficient to hold back the rate of inflation. inflation. Therefore, the consensus now expects that BI will not increase interest rates again throughout 2023.

Key Takeaways:

The United States stock market index S&P 500 closed up 2.47% in trading last week. This was driven by positive sentiment from market players towards the Fed. Based on the latest inflation data, it shows that inflation is starting to decline. This strengthens expectations that the Fed will soon slow down interest rate increases. For the next Fed meeting at the end of January, consensus estimates an increase of 0.25%.

For the domestic economy, the economic liquidity indicator or money in circulation last December was at IDR 8,525.5 trillion, experiencing growth of 8.3% YoY. The development of M2 in December 2022 is mainly influenced by the development of net foreign assets and credit distribution. Net foreign assets recorded positive growth of 4.9%. Meanwhile, credit distribution grew 11% YoY. In other economic news, Bank Indonesia increased interest rates by 25 bps to 5.75%. Based on BI's statement, it indicates that this increase may be the last for 2023.

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