US inflation above consensus, S&P 500 down -0.28%

The United States stock market, the S&P 500, closed down -0.28% throughout last week's trading. Market sentiment this week was heavily influenced by various economic data. Inflation for January was reported to be higher than expectations, recording an increase of 6.4% compared to the previous year, higher than consensus expectations of 6.2%. This figure raises market players' concerns that the Fed will continue to increase interest rates until it reaches its inflation target of 2%. Comments from several Fed officials also indicated their position tended to be hawkish, they stated that an interest rate increase of 50 bps (0.5%) was more favorable to the Fed than 25 bps (0.25%). Apart from inflation data, there was also a report on retail sales in January, indicating that consumer spending still tends to be strong, so it is estimated that inflation will still be held at a high level. The energy sector experienced a decline of -6.92% last week due to the decline in world oil prices.

BI Maintains Interest Rate at 5.75%

At the Bank Indonesia Board of Governors' Meeting last week, BI held the BI 7-Day Reverse Repo Rate (BI7DRR) benchmark interest rate at 5.75%. Deposit Facility and Lending Facility interest rates are also maintained at 5% and 6.5%. This is in line with market consensus. According to Bank Indonesia, the current interest rate level is considered sufficient to ensure a continued decline in inflation. BI targets inflation to be in the range of 4% by the middle of the year. Apart from that, Bank Indonesia also raised its economic growth prediction to above 5%, from previously around 4.8%.

Trade Balance Surplus is reported above Consensus

Indonesia recorded a trade balance surplus of USD 3.87 billion in January 2023, higher than the market estimate of USD 3.3 billion. This is caused by the increase in exports which is faster than imports. Exports increased 16.4% compared to the previous year to USD 22.3 billion, higher than the market estimate of 12%. The increase in exports was driven by strong demand for mining products, gold, as well as exports of rubber and machinery. Meanwhile, imports slowed due to seasonal factors, growing 1.27% compared to the previous year, slower than market expectations of 1.5%. Oil & gas fell -9.21% monthly, while non-OIL & Gas fell -6.75% monthly, partly influenced by the Chinese New Year in China.

Key Takeaways:

The United States stock market S&P 500 experienced a decline of -0.28% due to US inflation figures being reported higher than consensus in January. US inflation rose by 6.4% compared to the previous year, which raised market players' concerns that the Fed would increase interest rates. Comments from several Fed officials also indicated their hawkish tendencies towards increasing interest rates.

For the domestic economy, Bank Indonesia (BI) decided not to change the BI7DRR benchmark interest rate at the level of 5.75% at its last meeting. This is in line with market expectations and is considered sufficient to ensure inflation remains under control. Indonesia recorded a larger-than-expected trade surplus in January 2023, namely USD 3.87 billion. This surplus was caused by an increase in exports which was higher than imports, especially mining products, gold, rubber and machinery. Imports slowed down due to seasonal factors and Chinese New Year in China.

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