Today’s Outlook:
Wall Street Index closed mixed on Thursday (22/06/23) after US Federal Reserve Chairman Jerome Powell continue to beat a hawkish drum in front of the Senate Banking Committee and signaled that more interest rate hikes are likely in the months ahead, a sentiment echoed by Fed Governor Michelle Bowman earlier in the session. These comments sent the US Dollar and US Treasury yields crawling upwards. The US Dollar Index which measures the strength of the US Dollar over 6 other major world currencies, rose 0.4% to a level of 102.41; USD notably gained 0.9% against the Japanese Yen. The yield of the 10-year US Treasury rose 7.6bps to 3.798%. Powell also mentioned that the decision will be based entirely on future economic data; and Wall Street expects inflation to cool faster, as unemployment rate will start to creep higher which is what the Fed has intended with its rate increases. The financial markets have priced in a 77% probability of another 25 bps rate hike at the conclusion of the FOMC Meeting in July, according to CME’s Group FedWatch tool.
On the economic front, US Initial Jobless Claims held steady at a 20-month high, remaining elevated for a third straight week; while the Conference Board’s Leading Economic index posted its 14th consecutive monthly decline, suggesting that the Fed’s efforts to dampen the economy are beginning to have their intended effect. Meanwhile, the housing market showed further signs of stabilizing last month after standing out last year as the sector most visibly upended by the Fed’s rate hikes; although this time came at the cost of the largest decline in a decade for residential housing market prices.
From Europe, investors were surprised when the Bank of England implemented a higher-than-expected interest rate hike of 50 bps to 5% (from 4.75%) in order to tame the UK Inflation that has been struggling for the past two months at 8.7%. Domestically, Bank Indonesia’s Board of Governors Meeting again held BI7DRR at 5.75%, with the composition of Deposit Rate (June) at 5% and Lending Rate (June) at 6.5%. As for today, it can also be called as PMI data day at least for Japan, Germany, Eurozone, UK, and US.
Corporate News
BTPN Collaborates with IFC to Issue IDR 7.4 Trillion Green Bonds PT Bank BTPN Tbk. (BTPN) in collaboration with the International Finance Corporation (IFC) will issue social bonds and green bonds equivalent to USD 500 million or around IDR 7.48 trillion (exchange rate: IDR 14,970). Under the partnership, IFC will invest up to USD 500 million in BTPN, consisting of the issuance of social bonds and green bonds. This bond issuance will be the first of its kind for BTPN. BTPN President Director Henoch Munandar said the bond issuance is the bank’s effort to strengthen its commitment to support the micro, small, and medium enterprises (MSMEs) sector in Indonesia, especially women-driven businesses. Then, the issuance of green bonds is one of the supports for adaptation actions to climate change. (Bisnis)
Domestic Issue
Anticipating 2024 Elections, Investors Hunt Bonds Rather Than Stocks Ahead of the political year of the 2024 elections, retail investors tend to start aggressively hunting bond instruments in order to diversify. Corporate bonds and Government Securities (SBN) are in the spotlight. Head of Research & Investment Connoisseur of PT Moduit Digital Indonesia (Moduit) Manuel Adhi Purwanto explained that in general, big moments such as elections will indeed increase the need for fixed income instruments. Manuel said that because from the investor side, there will be a tendency to change risk profiles. For example, if they previously had a tendency to take risks, their portfolios were more in stocks, now they might start to reduce, starting to shift to bonds. In addition to anticipating capital market turmoil in the era of uncertainty in the political year, the increasing demand for fixed income instruments is also driven by the era of high benchmark interest rates. Moreover, there is the potential for the US Central Bank or the Fed to lift the benchmark interest rate once again towards the end of this year, before it is gradually reduced starting early next year. This means that debt instruments that will be issued in the near future still have the opportunity to provide high yields. (Bisnis)
Recommendation
US10YT unexpectedly crawled back above MA10 & MA20, seems to be back to test the mid-term Trendline Resistance that prevents Yield from rising further than 3.82%. ADVISE: Average Up accordingly. TARGET: 3.85- 3.86% / 3.97-4.0%.
ID10YT has yet to break MA20 Resistance and upper channel (downtrend). ADVISE: Average Up if the yield is able to break through 6.37%. TARGET: MA50 / 6.46%, up to 6.48%.
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