STAR Insight, Market Update 27 September 2021

Tapering likely starts in November

  • US equity and bond up, Energy to lead the positive trend
  • The Fed’s tapering brings treasury yield up
  • JCI up, energy sector leads the way

Energy and Financials lead the positive trend on S&P500

FOMC Meeting on 21-22 September decided The Fed rate remained at 0.25%, in line with market expectation. Employment data showed jobless claims at 351k last week, higher than the market expectation of 320k. We see investors’ appetite for risk assets improved with the S&P500 and Dow Jones indexes were up by 0.5% and 0.6%, respectively, last week. The energy sector lead the positive performance of S&P500 with a 4.7% gain as oil price reached the highest price since Sept’2018, followed by Financials, and Technology sectors which booked 2.21%, and 0.95% gain, respectively. US Dollar index was moving upward last week, increased by 0.25%, while 10Y treasury yield increasing by 8.9bps to 1.45%. Treasury yield have risen since the Fed meeting as expectations of stronger growth and high inflation drove investors out of safe-haven government bonds.

The Fed gave the signal that tapering will likely start on November

The Fed’s signal that it will cut its bond-buying program, bolstering the case in financial markets for the so-called reflation trade, which lifted Treasury yields and boosted shares of banks, energy firms, and other economically sensitive companies in the early months of 2021. The central bank said it would likely begin pulling back on its $120 billion a month government bond purchasing program as soon as November, while also signalling that it may raise interest rates in 2022, earlier than expected. Though monetary tightening is frequently seen as a drag on stocks, some investors view the Fed’s stance as a vote of confidence for the U.S. economy. The Russell 1000 Value index, where reflation-trade stocks are heavily represented, is up 17% year-to-date with the Russell 1000 Growth index up 19%, compared to an 18.7% rise for the S&P 500. The benchmark U.S. 10-year yield recently stood at 1.45%, near its highest level since July.

Coal and oil price increased; energy sector lead JCI performance

JCI up slightly by 0.2% to 6,145 last week with energy (+6.74%) and consumer cyclical (+3.39%) sectors lead the positive performance. Foreign investors’ appetite for Indonesian stock improved with a net buy of Rp2.7tn in the regular market last week. Foreign investors booked the biggest net-buy on BBRI (Rp1.9tn), BBCA (Rp609.5bn), TLKM (Rp392.3bn), and BUKA (Rp362.7bn). Coal and CPO stocks will be attractive this week as the commodity prices are positive, allowing JCI to increase which will also be supported by financial stocks and other economic recovery proxies (consumers, retail, and property sectors) as C-19 cases dropped further.

Indonesia’s 10Y government bond yield increased by 1.6bps last week, however, the spread to US 10Y Treasury yield narrowed to below 4.7%. Indonesian bond remained one of the best performing in the region.