Today’s Outlook:
Global stock markets mostly closed flat, while US bond yields fell on Wednesday (26.07.23) after the Federal Reserve set its 11th consecutive interest rate hike aimed at controlling Inflation. The rate hike, which was in line with market expectations, brought the benchmark interest rate to a range of 5.25% – 5.50%, the highest level since around the global financial crisis in 2007-2009. The Fed stated that the Federal Open Market Committee (FOMC) will continue to evaluate additional information and its implications for monetary policy going forward; thereby indicating that the US central bank remains open to various policy options in order to find the end point of this interest rate hike cycle and to keep Inflation under control. Fed Chair Jerome Powell said in a press conference the central bank will make decisions meeting by meeting, closely watching economic data, but noted that a rate cut is very unlikely this year; because although headline inflation was able to flatten, core inflation still remains quite high above the 2% target limit. The good news is that the central bank no longer expects a recession. Goldman Sachs said in a note to clients that the Fed’s statement did not signal a slower pace of hikes in the future, but that the bank was expecting a hold in September.
Not to mention other economic data released yesterday, one of which from the Europe, with France recorded a Consumer Confidence Index that remained the same as the previous period at 85. Meanwhile, the US released Building Permits and New Home Sales (June) data which clearly showed a weakening compared to the previous month. In terms of commodities, oil prices (US WTI) closed down 1.1% to USD78.78/barrel, as data showed US crude oil inventories fell less than expected.
The IMF released its latest projection of global economic growth where they cut the global economic growth forecast from the previous 3.5% to 3% this year and next year. The IMF also expects developed countries’ economic growth to drop to 1.5% this year, from 2.7% in 2022, and will still drop to 1.4% in 2024; less than the achievements of emerging countries which are predicted in 2023 to stay at the same 4% level as last year and even increase to 4.1% in 2024. As for today, the European Central Bank (ECB) will announce its interest rate decision where it is expected to rise by 25 bps to 4.25%. Later in the evening, the US will release Durable Goods Orders (June) and revised second quarter GDP, Goods Trade Balance (June), Pending Home Sales (June), as well as Initial Jobless Claims which is expected to rise to 235k from 228k in the previous week.
Corporate News
PGE Will Issue USD 500 Million New Bonds to Pursue 1 GW Capacity State-owned company engaged in the EBT business, PT Pertamina Geothermal Energy Tbk (PGEO) will issue new bonds worth USD 500 million or around IDR 7.50 trillion. The proceeds from the bond issuance will be used to finance geothermal power plant development projects in order to reach an installed capacity of 1 Gigawatt (GW) in the next two years. Currently, the installed capacity managed by PGE reaches 672 Megawatts (MW), so there is still a gap of 340 MW. “The average geothermal powerplant requires an investment of USD 3 million per megawatt, so it will require a capital expenditure of USD 1 billion,” PGEO Finance Director Nelwin Aldriansyah told the media in Jakarta on Wednesday (26/7). (Katadata)
Domestic Issue
Indonesia’s Bond Market Remains Solid, Despite BI’s Decision to Hold Interest Rate in July The country’s bond market is still solid amid the potential for a global interest rate hike. Market players have generally expected the possible steps taken by the Fed in the future. Director & Chief Investment Officer Fixed Income PT Manulife Aset Manajemen Indonesia (MAMI) Ezra Nazula observed that the market has anticipated Bank Indonesia’s (BI) policy to hold interest rates this year. As is known, BI again held the benchmark interest rate at 5.75% at the Board of Governors Meeting (RDG) on Tuesday (25/7). Ezra sees that the Indonesian bond market is supported by domestic conditions that are still supportive, such as the falling inflation rate and a surplus trade balance. This in turn also strengthens the rupiah exchange rate. (Kontan)
Recommendation
US10YT seems to have to test support for a moment on the MA10/yield of 3.837%. In overall, it is still comfortably moving within the Uptrend channel. After the MA20/3.877% resistance and the previous High yield level of 3.922%, US10YT only has a smoother chance towards the TARGET of 4.0-4.091% / 4.20-4.243% (= equivalent to the previous High level of November 2022). ADVISE: AVERAGE UP accordingly.
ID10YT finally broke the Downtrend channel, even able to perch above the MA50 Support, making 6.316% the closest Support yield level at this time. The strengthening of this yield opens up the potential to rise towards the TARGET yield of 6.39% / 6.46% – 6.478%. ADVISE: AVERAGE UP accordingly.
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