Today’s Outlook:
The Dow Jones closed lower by 366 points/1.1% on Thursday (06/07/23), leading the weakness between the Nasdaq and the S&P 500, as economic data showing the job market continues to run hot sparked a flurry of bets on further Federal Reserve rate hikes; sending Treasury yields surging higher ahead of the monthly jobs report due Friday. US ADP Nonfarm Employment Change turned out to record 497 thousand new jobs in the private sector in June, far above economists’ estimates of 228 thousand and last month’s 267 thousand. The data gave a more significant negative sentiment to the market because the actual Initial Jobless Claims also turned out to be slightly higher than expected, and the US JOLTS Job Openings data for May was also below expectations. Stoking market fears that the Fed is likely to follow its guidance for two more hikes. Adding to the signs of economic strength, service sector activity data as reflected in the US ISM Non-Manufacturing PMI expanded further, supported by rising demand; although prices paid both by consumers as well as at the producer level (as an indicator of Inflation), fell more than the 3-year low.
In response to the economic data announcement above, Treasury yields jumped in anticipation of more Fed tightening ahead, with the 2-year yield and 10-year yield topping 5% and 4%, respectively. Currently, market participants priced in a 93% chance that the US central bank will raise interest rates this July, as quoted from Investing.com’s Fed Rate Monitor Tool.
From continental Europe, German Factory Orders in May also jumped significantly above estimates, growing 6.4% (higher than the consensus of 1.2%, and April’s 0.2%). Unfortunately, business activity elsewhere was still sluggish, with UK Construction PMI in June falling into contractionary territory and Retail Sales (May) for Eurozone unable to recover from the previous month’s negative growth.
Today will be monitored: Indonesia’s Foreign Exchange Reserves (June), German Industrial Production (May), and the most awaited by market participants later tonight at around 7.30 pm GMT, the US Nonfarm Payrolls data for June (consensus: 225k, down from May at 339k), as well as the Unemployment Rate which currently stands at 3.7%. The market is quite nervous waiting for this additional public sector employment data (excluding the livestock sector) as previously ADP Nonfarm Payrolls (private sector) has recorded an unexpected surge. One more surprise above expectation will add confidence that the labor market is indeed still tight and therefore the Fed deserves to continue its upward trend in interest rates.
Corporate News
Pefindo Revises J Resources (PSAB) Rating to Stable PEFINDO affirmed the idBBB+ rating for PT J Resources Asia Pasifik Tbk (PSAB) as well as the Sustainable Bonds I and MTN I issued. PEFINDO revised the outlook on the company’s rating to “stable” from previously “CreditWatch with negative implications”, along with PSAB’s ability to pay off PUB I Phase I Year 2019 and the Company’s better liquidity profile after successfully restructuring its debt securities. The ratings reflect the Company’s sizable resources and mining reserves, moderate financial flexibility, and high gold demand. However, the ratings are constrained by the Company’s aggressive capital structure, exposure to gold price fluctuations, and risks related to the development of immature mines. The rating can be upgraded if PSAB has fully operated a new project that can sustainably improve the Company’s financial profile. (Emiten News)
Domestic Issue
The Government Conducts Private Placement Worth IDR 2.5 Trillion Through the Issuance of FR006 Series SUNs The government on Wednesday, July 5, 2023, issued Government Bonds (SUN) through Private Placement with a total amount of IDR 2.5 trillion, the transaction of which was carried out on June 27, 2023. As announced by the Directorate General of Financing and Risk Management (DJPPR) of the Ministry of Finance, the state bonds issued are the type of fixed-rate SUN series FR0065 which can be traded. The FR0065 series SUN provides a coupon of 6.625% and a yield of 6.24% with a maturity date of May 15, 2033, and a settlement date of July 5, 2023. (Emiten News)
Recommendation
US10YT has arrived at the highest area in 4 months, entering the psychological level of yield above 4% and even the high reached 4.083%. Although a strong Uptrend must be recognized, please consider the leading indication of RSI negative divergence when US10YT is in the resistance area. It would be very natural for a reversal to = occur around this yield, especially if US economic data sentiment plays a role later tonight, so our ADVISE: HOLD, anticipate SELL ON STRENGTH.
ID10YT is indeed a less attractive investment than US10YT at the moment so no wonder it has not been able to break out of the down channel. ID10YT yield is still sluggish below the MA10 & MA20 network at the nearest Resistance range: 6.265% – 6.291%; up to 6.308% upper channel barrier. There is potential for a slight technical rebound in yield at the current 6.188% lower channel support position. ADVISE : HOLD, Wait & See.
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