STAR Insight, Market Update 16 Agustus 2021

JCI failed to break resistance

  • U.S. stock market up while dollar and bond yield declined
  • U.S. inflation is peaking while the tapering discussion continues.
  • JCI’s 6,200 psychological resistance remained strong

US CPI slowed, stock and treasury prices were up

US CPI was indicated at 0.5% MoM in July, in line with the consensus, even though below the prior period of 0.9%, while PPI Final Demand MoM in July was recorded at 1%, higher than the consensus forecast of 0.6%. Slower than expected inflation pared fear of early tempering which supported the S&P 500 to increase by 0.7% and Dow Jones by 0.9% last week. Materials and Industrials sectors led the positive performance on S&P500, increasing by 2.81% and 1.77%, respectively. US Dollar index was slightly down last week, decreased by 0.24%, while 10Y treasury yield decreased by 2.02bps to 1.27%. However, we note that the consensus remained optimistic on US economic growth while inflation is expected to remain high in 2022.

Tapering timeline in discussion as inflation peaked

Several U.S. central banks officials stated that the Feds should start withdrawing their support since the U.S. economy is growing steadily and the labor market is rebounding. Policymakers are in the process of discussing how and when they should begin cutting massive asset purchases which started last year to stabilize financial markets and support the economy through COVID-19. There is a range of views, with several Fed executives supporting cutting bond purchases in the near time, and start tapering near the end of the year. The Fed started to help the economy by purchasing $120 billion government bonds last year until progress is shown in inflation and employment goals. Inflation has spiked this year as the economy reopened which was also caused by ongoing supply chain strains. However, as inflation is peaking, the U.S. labor market is still short about 6 million jobs from its pre-pandemic levels.

JCI failed to break the technical resistance level

JCI dropped 1% last week and failed to break its resistance and psychological level at 6,200 with technology (-7.45%), healthcare (-1.6%), and financials (-1.25%) sectors dropped the most. Foreign investors recorded a net sell of Rp245bn in the regular market with the biggest net-sell on BUKA (Rp1.33tn), BBRI (Rp90.5bn), BABP (Rp89.8bn), and TLKM (Rp65.6bn). Nonetheless, we note more positive news from Indonesia’s vaccination program with 10.3% of the Indonesian population has been vaccinated (as of 14Aug), almost doubled from 5.9% in mid-July.

Bank Indonesia is expected to keep its benchmark interest rate at 3.5% at the meeting this week, as it would likely support economic recovery without adding pressure to the currency. Last week, Indonesia’s 10Y government bond yield increased 6.4bps as foreign investors recorded a net sell of Rp2.75tn from Indonesia’s government bond market.