STAR Insight, Market Update 26 Juli 2021

All eyes on Fed Meeting this week

  • US equity rise despite mixed data results
  • Dollar and Yen rises ahead of FOMC meeting
  • JCI and bond yield were positive despite foreign outflow


Positive performance of S&P500 despite mixed data results

Markit US Manufacturing PMI showed positive results last week, recorded at 63.1 for July, higher than the market expectation of 62.0. For Markit US Services PMI, the actual number in July recorded lower than consensus estimation, 59.8 actual versus 64.5 estimated. Despite these mixed data results, S&P 500 jumped 3.6% last week, and Dow Jones was also up by 3.2%. All sectors in the S&P500 index performed positively, led by the communication services sector which increased by 4.97%. US Dollar index was relatively flat last week, decreased by 0.03%, while 10Y treasury yield was down 1.4bps to 1.27% last week, due to anticipation for FOMC’s meeting regarding stimulus tapering. The Fed’s two-day meeting will conclude on Wednesday. Policymakers are expected to discuss plans to slowing down the Fed’s monthly bond purchases.

Risk sentiment declines ahead of Fed’s meeting, Dollar and Yen rises

US dollar started the week stronger against riskier currencies, like the Australian dollar, followed by the safe-harbor Japanese yen, as rising COVID-19 cases and a decline in Asian equities set a cautious tone ahead of Federal Reserve’s meeting this week. Compared to the Australian dollar, the US dollar and Japanese yen rose 0.2% to $0.7351 and 0.5% to 81.08 yen per Australian dollar respectively. Against the dollar, the yen added 0.2% to 110.32 helped by a decline in US Treasury Yields. The Dollar Index slipped slightly to 92.833 due to pressure from the euro and yen, but still close to its three-and-a-half-month high of 93.194. Some analysts project the dollar would continue to strengthen this week due to the possibility of the Fed moving a step closer to tapering after the conclusion of its two-day policy meeting on Wednesday.

JCI and bond yield improved further despite foreign outflow

Despite the COVID-19 case remained relatively high in Indonesia, recording 34,257 new cases on Friday, JCI managed to book a 1.4% gain last week supported by consumer cyclical (+4.15%) and technology (+4.13%) sectors. BI 7-days reverse repo rate is maintained at 3.5% (Fig. 1). We view that JCI remained positive last week partly supported by the vaccination rate which steadily increased, up to 16.5 million people have been completely vaccinated as of 19 July, which represents 6.1% of the total population. However, foreign investors recorded a net sell of Rp213bn in the regular market with the biggest net-sell on BBCA (Rp90.9bn), DMMX (Rp79bn), ANTM (Rp59.9bn), and UNVR (Rp51.2bn).

On the bond market, despite foreign investors’ net-sell of approximately Rp1.8tn, Indonesia’s 10Y government bond yield was down by 6.2bps last week as domestic bond-buying remained strong.