S&P 500 Up by 0.3%

The US stock market, represented by the S&P 500, closed up by +0.3% throughout last week's trading. Investors focused on government discussions during the week. Reports indicated that negotiators were heading towards a potential agreement to raise the US government's debt limit, a move that would avoid the feared possibility of default if no agreement is reached. Additionally, the technology sector also rallied last week due to positive sentiment around Artificial Intelligence (AI). Out of the 11 S&P 500 sectors, 8 closed in the green, with the highest increases seen in the Consumer Discretionary sector at +0.76%, Communication Services at +0.54%, and IT at +0.32%.

BI Holds Interest Rate at 5.75%

Bank Indonesia (BI) decided to maintain the reference policy rate, the BI 7-Day Reverse Repo Rate (7DRRR), at the level of 5.75% at the May 2023 Board of Governors meeting. This decision aligned with market and analyst expectations, as the current interest rate is deemed consistent with BI's efforts to lower inflation to the 3% ± 1% target range.

However, BI also changed its tone regarding external risks and domestic growth. In its press release, BI stated that global risks have increased due to uncertainty in monetary policy in advanced economies, the trade war between the US and China, and geopolitical turmoil in several regions. Therefore, BI emphasized that it would place more policy weight on the stability of the Rupiah exchange rate, which is one of the determinants of Indonesia's economic competitiveness.

Furthermore, BI highlighted a slowdown in domestic investment, particularly in the construction sector. In the first quarter of 2023, building investment in Gross Domestic Product (GDP) grew by less than 1% year-on-year, marking the slowest pace since the second quarter of 2022. This has affected the slowing growth of credit and money in circulation (M1), which stood at 8.1% and 3.4% year-on-year in April 2023. Consequently, last week, BI tempered its optimism about economic growth this year. While previously stating that growth would lean towards the upper bound of the 4.5% to 5.3% range, BI now expects growth to be within that range. BI hopes that fiscal stimulus and macroprudential policies can boost domestic investment and consumption, as well as enhance Indonesia's export competitiveness.

Subsidized Corn Feed Plan for Poultry Farmers

The significant rise in corn prices has led to a surge in chicken egg prices. This has raised concerns at the Ministry of Trade, prompting them to search for solutions to stabilize food prices. Currently, chicken egg prices have reached Rp33,125/kg, a 3.2% increase since the beginning of the year. One option being considered by the Ministry of Trade is to provide subsidies for corn to poultry farmers. The plan is still under study, but an example scheme is that if corn prices are Rp6,500/kg, the government will subsidize Rp1,500/kg of the total price. Subsidies may also take the form of transportation assistance.

Key Takeaways:

The US stock market, represented by the S&P 500, closed up by +0.3% throughout last week's trading. Investor focus during the week was on US government discussions regarding the debt limit. Reports indicated that negotiators were heading towards a potential agreement to raise the US government's debt limit, a move that would avoid the feared possibility of default if no agreement is reached.

On the domestic front, Bank Indonesia (BI) decided to maintain the reference policy rate, the BI 7-Day Reverse Repo Rate (7DRRR), at the level of 5.75% at the May 2023 Board of Governors meeting. Additionally, BI changed its tone regarding external risks and domestic growth. BI emphasized that it would place more policy weight on the stability of the Rupiah exchange rate, which is one of the determinants of Indonesia's economic competitiveness. BI also highlighted a slowdown in domestic investment, particularly in the construction sector. Consequently, BI tempered its optimism about economic growth this year.

In other economic news, the significant rise in corn prices has led to a surge in chicken egg prices. This prompted the Ministry of Trade to search for solutions to stabilize food prices, including the consideration of subsidies for corn to poultry farmers. The plan is still under study, and details are pending.

ANALYSTS CERTIFICATION

The views expressed in this research report accurately reflect the analysts’ personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

DISCLAIMERS

This research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. Contents in this research is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on our report and wish to rely upon, whether for the pur-pose of making an investment decision or otherwise. Any recommendations contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT. Surya Timur Alam Raya or its affiliates may seek or will seek investment or other business relationships with entities in this report.