The Fed Raises Interest Rates, US Regional Banking Sentiment is Negative

The United States stock market, the S&P 500, closed down -0.8% throughout last week's trading. Sentiment over the past week has been trending negative due to concerns about the stability of the regional banking sector. The week started with First Republic Bank being taken over by JPMorgan in a government-led deal – a rescue that came after the bank disclosed withdrawing more than $70 billion in deposits. On Thursday, shares of PacWest Bancorp and Western Alliance plunged after reports that the two banks were exploring strategic options. Meanwhile, First Horizon slumped after abandoning plans to merge with TD Bank due to uncertainty over regulatory approval. In terms of interest rate policy, at last week's meeting the Fed raised interest rates by 25 basis points. Based on CME FedWatch, 88% of market players expect the Fed to maintain interest rates at its meeting in June. 8 of the 11 sectors closed in red, with the biggest decline in the Energy sector at -5.81%, followed by the Financial sector -2.65%, and Communication Services at -2.29%.

April Inflation was reported at 4.33%, Lower than Consensus

Indonesia's inflation in April was reported at 4.33%, lower than consensus expectations of 4.36%. This level is considered to support the inflation target set by Bank Indonesia of below 4% for 2023. Food prices rose by 3.77% compared to the previous year in April, much lower than last year's food inflation of 5.44%. This moderate increase is due to sufficient food supplies. Inflation in the transportation sector was recorded quite high at 12% compared to the previous year due to increased mobility during the homecoming season, which reached 26.3 million mobility and was an increase of 45% from the previous year. With relatively stable inflation and a strong rupiah exchange rate, the consensus estimates that Bank Indonesia (BI) will not raise interest rates at its next meeting on May 25 2023.

Fuel Prices Drop; Ministry of Trade changes DMO for Cooking Oils

At the beginning of this month, Pertamina made changes to fuel prices, which resulted in a decrease in prices for several types of fuel. Dexlite decreased by 3.8%, with a new price of 13,700 per liter. Apart from that, Pertamina Dex also experienced a decrease of 5.2%, with a new price of 14,600 per liter. Meanwhile, the price of Pertamax and Pertamax Turbo fuel has not changed, remaining at 13,300 per liter and 15,000 per liter. In other economic news, the Ministry of Trade revised the DMO (Domestic Market Obligation, or mandatory supply of domestic needs) policy for cooking oil. In the previous regulation in February, the DMO for cooking oil was set at 450,000 tons per month. In the updated regulations, the Ministry of Trade lowered the DMO rate to 300,000 tons per month. In addition, the DMO regulations for crude palm oil (CPO) were also revised with the ratio for exports from the previous 1:6 to 1:4. This policy is aimed at maintaining price stability and supply of cooking oil on the market.

Key Takeaways:

The United States stock market, the S&P 500, closed down -0.8% throughout last week's trading. Sentiment over the past week has tended to be negative due to concerns about the stability of the regional banking sector. In terms of interest rate policy, at last week's meeting the Fed raised interest rates by 25 basis points. Based on CME FedWatch, 88% of market players expect the Fed to maintain interest rates at its meeting in June.

For the domestic economy, Indonesian inflation in April was reported at 4.33%, lower than consensus expectations of 4.36%. Food prices rose by 3.77% compared to the previous year in April 2022, much lower than last year's food inflation of 5.44%. This moderate increase is due to sufficient food supplies. Inflation in the transportation sector was recorded quite high at 12% compared to the previous year due to increased mobility during the homecoming season.

In other domestic news, at the beginning of this month, Pertamina made changes to fuel prices, which resulted in a reduction in the price of several types of fuel, namely Dexlite and Pertamina Dex, each experiencing a price reduction to 13,700 per liter and 14,600 per liter.

Apart from that, the Ministry of Trade revised the DMO (Domestic Market Obligation, or mandatory supply of domestic needs) policy for cooking oil. In the previous regulation in February, the DMO for cooking oil was set at 450,000 tons per month. In the updated regulations, the Ministry of Trade lowered the DMO rate to 300,000 tons per month. This policy is aimed at maintaining price stability and supply of cooking oil on the market.

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