US Core Inflation Below Expectations, S&P 500 Closes Green

The US stock market, represented by the S&P 500, closed up by +2.42% throughout last week's trading. Much of the positive sentiment during the week was driven by inflation data. Last Wednesday, the report on Core CPI (Consumer Price Index) for June showed a 0.2% increase compared to the previous month, marking the smallest increase in over two years. Additionally, the increase was supported by the Core PPI (Producer Price Index) report, which showed a 0.1% increase compared to the previous month, lower than the consensus expectation of 0.2%. Lower inflation figures raised hopes for The Fed to soon end its interest rate hike cycle. All sectors of the S&P 500 experienced gains during last week's trading.

Foreign Exchange Reserves Decrease by $1.8 Billion in June

Indonesia's foreign exchange reserves experienced a $1.8 billion decline, reaching $137.5 billion at the end of June 2023. This decrease was largely anticipated due to the maturity of global bonds worth approximately $1.6 billion, with no new issuances during the same period. Additionally, the decline was attributed to a drop in the trade balance, which fell to a three-year low of $0.44 billion in May. This was driven by weakening prices of Indonesia's main export commodities such as coal and CPO, in line with decreased demand from China. The current level of foreign exchange reserves is equivalent to 6.1 months of imports or 6 months of imports plus external government debt payments. This level is also considered sufficient to stabilize the Rupiah if needed.

The Rupiah has shown appreciation since the beginning of the year (YTD) by +2.8%. This increase is relatively better compared to the Thai Baht at -2%, the Malaysian Ringgit at -6.1%, and the Indian Rupee at +0.3% YTD. Foreign inflows of $6.7 billion since the beginning of the year, originating from the bond market at $5.6 billion and the stock market at $1.1 billion, have also contributed to Rupiah appreciation. The consensus outlook for the Rupiah exchange rate is in the range of 14,700 to 15,200 for this year. The consensus view sees few catalysts to drive Rupiah appreciation, unless there is a pivot by The Fed.

Consumer Confidence Index Slightly Declines

Bank Indonesia reported a decrease in the Consumer Confidence Index (CCI) for June 2023, to a level of 127.1 from 128.3 in the previous month. This decline is associated with decreases in all CCI components. Despite the decline, consumer confidence remains strong as it still resides in the optimistic zone with an index above 100.

Key Takeaways

The US stock market, represented by the S&P 500, closed up by +2.42% throughout last week's trading. Much of the positive sentiment during the week was driven by inflation data. Last Wednesday, the report on Core CPI (Consumer Price Index) for June showed a 0.2% increase compared to the previous month, marking the smallest increase in over two years. Additionally, the increase was supported by the Core PPI (Producer Price Index) report, which showed a 0.1% increase compared to the previous month, lower than the consensus expectation of 0.2%.

On the domestic front, Indonesia's foreign exchange reserves experienced a $1.8 billion decline, reaching $137.5 billion at the end of June 2023. This decrease was largely anticipated due to the maturity of global bonds worth approximately $1.6 billion, with no new issuances during the same period. The current level of foreign exchange reserves is equivalent to 6.1 months of imports or 6 months of imports plus external government debt payments. This level is also considered sufficient to stabilize the Rupiah if needed.

The Rupiah has shown appreciation since the beginning of the year (YTD) by +2.8%. The consensus outlook for the Rupiah exchange rate is in the range of 14,700 to 15,200 for this year. The consensus view sees few catalysts to drive Rupiah appreciation, unless there is a pivot by The Fed.

In other economic news, Bank Indonesia reported a decrease in the Consumer Confidence Index (CCI) for June 2023, to a level of 127.1 from 128.3 in the previous month. Despite the decline, consumer confidence remains strong as it still resides in the optimistic zone with an index above 100.

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