Today’s Outlook:
US MARKETS: The US DOLLAR fell along with US Treasury yields after data showed only a slight increase in US inflation in April. The US Commerce Department announced the PCE price index which is widely seen as the Federal Reserve’s favorite inflation indicator, increased 0.3% in April in line with expectations, while core PCE rose 0.2%, compared to 0.3% in March. Market strategists see this PCE price index data will not provide much clarity on whether the Federal Reserve still needs to keep interest rates high for longer, or decide on an immediate rate cut. Separately, the Chicago Purchasing Managers’ Index (PMI), which monitors the health of manufacturing in the Chicago area, fell to 35.4 from 37.9 last month and well below economists’ expectations of 41. For the week, the MSCI index showed a second consecutive decline but a monthly gain.
EUROPEAN & ASIAN MARKETS: Data showed EUROZONE INFLATION increased more than expected in May, although analysts say that probably won’t stop the European Central Bank (ECB) from lowering borrowing costs at their meeting next Thursday June 6, although it may strengthen the case for a pause in July.
CURRENCY: The DOLLAR INDEX which measures the greenback’s strength against a basket of other major world currencies including the Yen and Euro, fell 0.15% to 104.61 and showed the first monthly decline in 2024 after the release of flat Inflation data.
FIXED INCOME: US TREASURY YIELD fell after signs of stabilizing inflation in April, suggesting that the potential for the Fed to cut interest rates later this year still remains. The benchmark 10-year US Treasury yield fell 5.1 basis points to 4.503%, from 4.554% at the end of Thursday while the 30-year US Treasury yield fell 3.4 basis points to 4.6511% from 4.685%. The yield on the 2-year note, which usually moves with interest rate expectations, fell 5.2 basis points to 4.8768%, from 4.929% at the end of Thursday.
COMMODITIES: OIL prices slipped to a weekly loss after weakening on Friday, on renewed hope on the prospects of a ceasefire in Gaza and concerns about continued sluggish global demand due to underwhelming CHINA PMI data. US WTI crude fell 1.18% to USD 76.99/barrel and BRENT settled at USD 81.62/barrel, down 0.29%. This price weakness comes a day before OPEC+ holds their important meeting on Sunday. As noted, OPEC+ members are currently cutting production by 5.86 million barrels per day (bpd), or about 5.7% of global demand. The figure includes a cut of 3.66 million bpd, which will expire at the end of 2024, and voluntary cuts by eight members of 2.2 million bpd, which will expire at the end of June 2024. On Sunday, OPEC+ agreed to extend the cut of 3.66 million barrels per day for one year until the end of 2025 and extend the cut of 2.2 million barrels per day for three months until the end of September 2024.OPEC+ will phase out the production cut of 2.2 million barrels per day for one year from October 2024 to September 2025.
Corporate News
Issuing Sukuk Phase I IDR 3 Trillion, BRIS Appoints BRI Danareksa
BRI Danareksa Sekuritas (BRIDS) was officially appointed by PT Bank Syariah Indonesia Tbk (BRIS) as one of the underwriters for the issuance of Sustainable Sustainability-Based Mudharabah Sukuk or Sukuk Sustainability with a total Sustainable Public Offering worth IDR 10 trillion. In the issuance of Sukuk Sustainability Phase I, BSI is targeting total emissions to be raised as much as IDR 3 trillion, of which Sukuk Sustainability is offered in three series to the public. Series A for a tenor of 370 calendar days with an indicated coupon of 6.40% – 7.10%, Series B with a tenor of 2 years with an indicated coupon of 6.45% – 7.15%, and Series C with a tenor of 3 years with an indicated coupon of 6.50% – 7.20%. The funds obtained from the issuance of this Sustainability Sukuk will later be used by BSI for the distribution of new or existing financing, either directly or indirectly, for activities included in the category of Environmentally Sound Business Activities (KUBL) and Socially Sound Business Activities (KUBS) as regulated in POJK No.18 of 2023. (CNBC Indonesia)
Domestic Issue
Details of Tapera Fund Investment Placement, Most in SBN
The public housing savings management fund (Tapera) is placed in a number of investment instruments with the largest portion in bonds. BP Tapera Commissioner Heru Pudyo Nugroho stated that the largest portion of Tapera fund investment will be allocated to investment instruments in Government Securities (SBN). Heru said that the investment portfolio currently being managed came from deposits of former Civil Servants Housing Savings Advisory Board (BAPERTARUM-PNS) participants. “We optimize this [ex-Bapertarum participant funds] through collective investment contracts run by investment managers. The portfolio is approximately 80% in bonds, mostly in state bonds,” Heru said at a press conference on Friday (31/5/2024). Apart from SBN, Tapera funds are also fostered through corporate bond investment instruments. Heru ensured that the bond instruments chosen were bonds with a high rating of at least grade A. Along with this, Heru emphasized that the percentage of profit from saving via Tapera contributions is certainly much higher than the public investing their funds in deposits.(Bisnis)
Recommendation
US10YT actually has an upside target towards a yield of 4.682% based on the INVERTED HEAD & SHOULDERS (bullish reversal) pattern, up to the level of the previous April High around yield 4.74%. But this time it seems to have to test the Support 3 layer Moving Average first around yield 4.502% – 4.47%. ADVISE: if the yield bounces back up then be prepared to anticipate a price drop.
ID10YT actually has a target of strengthening yield towards 7.325% equivalent to the previous high level of April 7.33%; after breaking out of the downtrend channel pattern. ADVISE: if the yield is able to pass the last Resistance (MA20) at a yield of 6.962% then reduce the position (= sell bonds) because the price will weaken and the yield starts its ascent.
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