The Fed Holds Interest Rates, S&P 500 Rises 2.58%

The United States stock market, the S&P 500, closed up +2.58% during last week's trading. The big news this week was the Federal Reserve's decision not to raise interest rates after ten consecutive increases. Nonetheless, the Fed also released reference point projections that were more hawkish than expected. The Fed is forecasting higher gross domestic product growth, core inflation and peak interest rates, indicating there are still two more rate hikes this year. Market participants appeared to ignore signals of two more hikes and focused more on economic data, which continued to show easing inflation and signs of cooling in the economy, leading them to increase confidence that the Fed will end its aggressive tightening cycle sooner. Sectors that are sensitive to interest rate movements are the ones that benefit most from the Fed's decision, with the Technology sector experiencing an increase of +4.44% last week, also supported by the hype around artificial intelligence (AI) which continues to drive positive sentiment in the sector.

Decline in Indonesia's Trade Surplus

Indonesia's trade surplus experienced a significant decline in May 2023, with the trade balance falling to USD440 million from USD3.9 billion the previous month. This decrease was caused by a large increase in import growth of 14.4% compared to the previous year, and exports which only grew 1% compared to the previous year. Significant import growth came from capital goods such as machinery, iron and vehicles, where this group grew by 60% compared to the previous year. Apart from that, there has also been a surge in imports of cheap goods from China. In terms of exports, cumulatively there has actually been a decline since the beginning of the year. Most of the decline occurred in commodities that China imports heavily, such as coal, iron and other minerals. This was caused by weakening domestic demand and a slowdown in the economic sector in China. Indonesia's new projected trade surplus will be in the range of USD 2-3 billion under these conditions.

Indonesia's Foreign Exchange Reserves Drop by $4.9 Billion

Indonesia's foreign exchange reserves decreased by USD 4.9 billion to USD 139.3 billion in May 2023. This was due to dividend repatriation, global bond payments and a decrease in the trade surplus. The larger-than-usual dividend repatriation comes after strong inflows and generous payouts for Indonesian shares. Two USD-denominated bonds maturing in May also contributed to this decline. This decline in foreign exchange reserves is not an immediate problem to worry about, unless it continues. Global bond maturities and dividend repatriation are seasonal, while market indications remain optimistic. However, we need to be careful about the current account balance which is likely to become a narrow deficit this year.

Key Takeaways:

The United States stock market, the S&P 500, closed up +2.58% during last week's trading. The big news this week was the Federal Reserve's decision not to raise interest rates after ten consecutive increases. Nonetheless, the Fed also released reference point projections that were more hawkish than expected. Sectors that are sensitive to interest rate movements are the ones that benefit most from the Fed's decision, with the Technology sector experiencing an increase of +4.44% last week, also supported by the hype around artificial intelligence (AI) which continues to drive positive sentiment in the sector.

For the domestic economy, Indonesia's trade surplus experienced a significant decline in May 2023, with the trade balance falling to USD440 million from USD3.9 billion the previous month. This decrease was caused by a large increase in import growth of 14.4% compared to the previous year, and exports which only grew 1% compared to the previous year. Indonesia's foreign exchange reserves decreased by USD 4.9 billion to USD 139.3 billion in May 2023. This was due to dividend repatriation, global bond payments and a decrease in the trade surplus.

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