Today’s Outlook:
Global stock markets posted gains while US Treasury yields fell on Friday (07/28/23) as markets digested the Bank of Japan’s decision to alter their extra-loose monetary policy, as well as data showing continued moderation in US annual inflation. The Bank of Japan on Friday adjusted its yield curve control scheme, offering to buy 10-year Japanese government bonds beyond the previous 0.5% target rate while keeping its benchmark short-term interest rate unchanged at -0.1% and long-term bond yields at zero. The move brings the BOJ more in line with other major central banks, which have raised interest rates aggressively to reduce inflation. The US Federal Reserve and the European Central Bank have announced rate hikes last week, with markets expecting they have neared the end of the rate hike cycle.
US inflation has slowed significantly in the 12 months to June, with the Personal Consumption Expenditures index rising by 3%, the smallest annual increase since March 2021, as reported by the Commerce Department.
The MSCI All Country stock index, which tracks stocks in nearly 50 countries, rose 0.72% to 705.13 points. The index has gained nearly 17% year-to-date. US Treasury yields weakened after hitting 2-week highs for most maturities, with the benchmark 10-year Treasury yield recorded down at 3.957% while the 2-year yield fell to 4.8786%. By now, market participants are fully aware that what lies ahead is all about how economic data will guide monetary policy going forward. A significant slowdown in inflationary trends has been seen, but at the same time growth has remained solid; just the scenario the central bank is hoping for a soft landing. The Japanese Yen experienced high volatility in the most volatile trading session in months following the BOJ move; while the US Dollar fell against a basket of major currencies. The yen weakened 1.18% versus the greenback at JPY 141.08/USD. The Dollar Index fell 0.059%, with the Euro up 0.45% to USD 1.1022/Euro.
Corporate News
Commonwealth Bank Prepares IDR 1 Trillion to Pay Off Maturing Bonds PT Bank Commonwealth will have bonds maturing on September 3, 2023. Commonwealth Bank has conveyed its readiness of funds to pay off the bonds. Corporate Secretary, AVP Bank Commonweatlh Kartini Putri Rahadhyanie said it had provided IDR 1 trillion in principal repayment funds and interest coupons for the 2020 Commonwealth Bank I Bonds. Furthermore, Kartini said the bond repayment had no impact on the Bank’s operational activities, legal and financial conditions or business continuity. For information, Commonwealth Bank’s liabilities as of March 2023 for securities issued amounted to IDR 998.9 billion. This figure is unchanged when compared to the end of 2022. (Kontan)
Domestic Issue
Government to Offer SR019 Retail SBN, Here’s What Analysts Say The government plans to offer Retail Sukuk SR019 series on September 1 – September 20, 2023 (tentative). Bank Negara Indonesia (BNI) Chief Dealer Fixed Income & Derivatives Fudji Rahardjo assesses that the current retail SBN offering will still be favored by the public. The coupon size factor offered is the main attraction. So far, information on the coupon amount for SR019 is still awaiting confirmation from the Government. However, the coupon amount is believed to be not much different from the coupon offered by ORI023 of 5.90% for a 3-year tenor and 6.10% for a 6-year tenor. According to Fudji, coupons for 3-year tenors or tenors that are not too long are attractive to retail investors. Investors are generally accustomed to tenors that are not too long. Meanwhile, another sweetening factor for SR019 is the minimum purchase that is not burdensome, and can be sold partially after the holding period. (Kontan)
Recommendation
US10YT Uptrend is maintained, on the way to the upper channel TARGET at yield : 4.243%; however, it is better to AVERAGE UP above the previous high level resistance level of 4.094%. This morning’s ID10YT yield appears to have immediately surged to 6.373%, approaching the TARGET pattern of 6.384%; surpassing the MA50 of 6.309% yield. In fact, the close of the previous session did break the downtrend but is still below the MA50; so it is best to wait for further confirmation that this level has actually been exceeded before believing that this break out is solid. ADVISE: Buy gradually.
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