US Employment Report Starts to Slow

The United States stock market, the S&P 500, closed down -0.5% throughout last week's trading. Stock markets over the past week appeared unaffected by the cut in the US debt rating. Investors are reacting more to the latest jobs report, which signals that the persistently tight labor market may be starting to loosen up a bit. In July, private and government (nonfarm) employment increased by 187 thousand, less than the previous consensus estimate of 200 thousand, indicating a slowdown in employment growth. However, average hourly earnings growth remained steady, rising by 0.4% compared to last month, exceeding estimates of 0.3%.

Indonesia's inflation was 3.08% in July

In July 2023, the inflation rate in Indonesia showed a downward trend, reaching 3.08% year-on-year (YoY), recording the lowest point in the last 15 months. This decline can be attributed to the normalization of prices of volatile goods, recording deflation of -0.03% YoY, down significantly from a peak of 11.5% a year ago, mainly due to a decline in food inflation. Basic food prices fell to 0.3% YoY, the lowest figure in the last three years. Even though there has been a decline in inflation, there are potential risks that need to be monitored. The possibility of dry weather from the natural phenomenon El Nino could have an impact on increasing domestic food prices.

Core inflation also slowed to 2.43% YoY, lower than the consensus estimate of 2.52% YoY. The weakening of core inflation was influenced by discretionary products such as cellphones, laptops, TVs and ACs, indicating lower purchasing power for non-essential goods.

Even though inflation has approached the midpoint of BI's target in July and core inflation reached its lowest level since March 2022, the market expects BI to maintain its policy interest rate at 5.75%. However, if domestic demand weakens further and the Federal Reserve's interest rates have peaked, BI may consider cutting interest rates as soon as the first quarter of 2024.

New OJK Regulations Regarding Sharia Business Units (UUS)

The Financial Services Authority (OJK) issued a new regulation, POJK 12 of 2023, which relates to Sharia Business Units (UUS). This regulation serves as an additional directive to the recently passed financial law, Law No. 4 of 2023, which primarily focuses on developing and strengthening the financial sector. According to the new regulations, banks that have Sharia Business Units (UUS) with total assets of at least IDR 50 trillion or at least 50% of their conventional assets are required to separate the UUS. This can be done by forming a new sharia bank or selling its sharia assets to an existing sharia bank within a period of two years.

Key Takeaways

The United States stock market, the S&P 500, closed down -0.5% throughout last week's trading. Investors were reacting to the latest jobs report, which signaled that the persistently tight labor market may be starting to loosen up a bit. In July, private and government (nonfarm) employment increased by 187 thousand, less than the previous consensus estimate of 200 thousand, indicating a slowdown in employment growth. However, average hourly earnings growth remained steady, rising by 0.4% compared to last month, exceeding estimates of 0.3%.

For the domestic economy, in July 2023, the inflation rate in Indonesia showed a downward trend, reaching 3.08% year-on-year (YoY), recording the lowest point in the last 15 months. Core inflation also slowed to 2.43% YoY, lower than consensus estimates. Even though inflation has approached the midpoint of BI's target in July and core inflation reached its lowest level since March 2022, the market expects BI to maintain its policy interest rate at 5.75%. However, if domestic demand weakens further and the Federal Reserve's interest rates have peaked, BI may consider cutting interest rates as soon as the first quarter of 2024.

In other economic news, the Financial Services Authority (OJK) issued a new regulation, POJK 12 of 2023, relating to Sharia Business Units (UUS). According to the new regulations, banks that have Sharia Business Units (UUS) with total assets of at least IDR 50 trillion or at least 50% of their conventional assets are required to separate the UUS. This can be done by forming a new sharia bank or selling its sharia assets to an existing sharia bank within a period of two years.

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