Today’s Outlook:
• As expected, major US stock indexes closed with modest losses and the US DOLLAR strengthened in volatile trading on Wednesday (18/09/24) after the US Federal Reserve opted for the first major cut to the FED FUND RATE in more than four years. The US central bank cut its benchmark interest rate by 50 bps, greater than the 25 bps usually reserved for adjustments, citing greater confidence that inflation will continue to decline to its 2% annual target. The rate, which directs how much interest banks pay each other and affects interest rates for consumers, is now in the 4.75%-5.00% range, the lower end of the range the market expected. The benchmark S&P 500 index briefly rose up to 1% after the announcement before dropping and closing down 0.29% at 5,618.26. Market strategists consider the last 7 days of gains to have priced-in this rate cut moment. The Dow Jones Industrial Average closed down 0.25% at 41,503.10, and the NASDAQ Composite flushed 0.31% to 17,573.30. Interest rates have been at their highest level in more than two decades since July 2023. MSCI’s world stock index rose to a record high during the session before eventually turning back minus 0.29% at 826.29. The DOLLAR INDEX, which measures the strength of the US dollar’s value against a basket of currencies including the Yen and Euro, weakened after the announcement before eventually rising 0.07% to 100.98. In the US government debt market, the yield on the rate sensitive 2-year US Treasury note rose 3.8 basis points to 3.6297%, from 3.592% at the end of Tuesday. The yield on the 10-year Treasury note rose 6.6 basis points to 3.708%, from 3.642% at the end of Tuesday. FED CHAIRMAN Jerome Powell said he sees no signs of recession, citing solid growth, lower inflation, and a labor market that remains at very strong levels. He justified the 50bps magnitude of the first rate cut after 4.5 years in favor of promoting maximum employment and a stable price trend. Market participants are now fully pricing in a cut of at least 25 bps at the central bank’s next meeting in November, with a roughly 40% chance of a larger cut of 50 bps.
• ECONOMIC INDICATORS: In addition to the Fed rate cut being the main highlight, the US was faced with Aug’s Building Permits & Housing Starts data which both posted quite aggressive monthly growth, reversing positively from a contractionary position in the previous month. This at least supports the idea that the US is indeed far from recession. For today, as usual, the weekly Initial Jobless Claims figure will be awaited, as well as the Philadelphia Fed Manufacturing Index (Sept), plus Existing Home Sales for Aug.
• EUROPEAN & ASIAN MARKETS:
— Next up on the busy policy calendar this week is the BANK OF ENGLAND meeting on Thursday, which financial markets expect to keep rates on hold. This decision may be supported by the fact that UK Inflation in Aug stabilized at 2.2% yoy as expected, despite deflation in their PPI.
— Similarly, EUROZONE Inflation rate also came in at 2.2% yoy as expected, thus UK & EUROZONE are on trajectory towards their respective central banks’ 2% Inflation Target.
— BANK OF JAPAN is also expected to hold rates unchanged on Friday. On Wednesday afternoon local time after the Fed meeting, the JAPAN YEN strengthened 0.11% to 142.24/USD. The pound sterling gained 0.28% to USD 1.3193.
• COMMODITIES: GOLD prices fell 0.62% to USD 2,553.67/ounce, after touching a record high earlier this week. OIL prices also fell, as interest rate cuts were seen as a response to US labor market concerns. BRENT oil closed at USD 73.65/barrel, down 5 cents.
• INDONESIA: BANK INDONESIA’S BOARD OF GOVERNORS’ MEETING surprisingly cut the BI7DRR benchmark rate by 25bps to 6.0% in anticipation of the Fed rate cut which eventually did materialize by 50bps to 4.75% – 5.0%. The market expected BI to base the decision which some considered as a less prudent move despite the fact that Indonesia’s Inflation is safely under control at 2.12% and RUPIAH has recently been comfortably below 15400/USD (even yesterday USD/IDR had touched a low of 15164 before closing slightly stronger to 15321, and formed a bullish reversal candle similar to Dragonfly / long-leg Hammer, in the Support area with indications of RSI positive divergence; suggesting a technical rebound for USD on the horizon). Foreign buying flow was also observed to be consistent where yesterday they booked purchases amounting to IDR 931.24 billion (RG market), meaning that as far as 2024 goes they have accumulated IDR 5.77 trillion worth of Indonesian stocks. JCI behavior is not much different from DJI et al, where in intraday trading yesterday Wednesday JCI had touched a new record high of 7879, before finally closing down 2.6pts to 7829. The question that haunts market participants: will the rest of September be characterized by a wave of consolidation, which fits the seasonal theme of Sept as a difficult month in stock market history? The wisest strategy is still to use Trailing Stop as a decision-making reference for investors/traders. NHKSI RESEARCH sees the nearest support is MA10 around 7760 today. If JCI closes below that level, please reduce your portfolio load (sell gradually).
Company News
• PTRO: Petrosea Receives idA+ Rating from Pefindo, Stable Outlook
• BREN: Winning Tender, BREN Entity Boosts 102.6 MW Capacity
• MEDC: Medco Subsidiary Seeks USD 228 Million Samosir Geothermal Block Exploration
Domestic & Global News
ID FOOD Ready to Supply Chicken Meat and Eggs for the Free Nutritious Meal Program
Microsoft, BlackRock to launch USD 30 billion fund for AI infrastructure
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