Indonesian stocks are expected to rise on Wednesday (04/01) amid positive sentiments stemming from around the globe although the strong US dollar, which remains near 14-year highs, puts some pressure on commodity prices (most notably on crude oil). On Tuesday (03/01), Indonesia's benchmark Jakarta Composite Index declined 0.39 percent to 5,275.97 points as investors engaged in profit taking after the significant rally that occurred during the last couple of days before the end of 2016.

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Manufacturing activity in Indonesia continued to contract in the last month of 2016. The Nikkei Indonesia Manufacturing Purchasing Managers' Index (PMI) slid to a reading of 49.0 in December 2016, from 49.7 in the preceding month (a reading below 50.0 signals contraction, while a reading above 50.0 signals expansion). It was the third consecutive month of contraction in the manufacturing sector of Southeast Asia's largest economy. The survey also showed that Indonesia's manufacturing exports showed their steepest fall since October 2015.

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According to the latest data from Indonesia's Statistics Agency (BPS), full-year inflation reached 3.02 percent in 2016, just within the 3 - 5 percent year-on-year (y/y) target range that was set by the central bank of Indonesia (Bank Indonesia). The 3.02 percent growth was the lowest annual inflation figure of Indonesia since 2012. In December 2016 Indonesia's consumer price index rose by 0.42 percent month-to-month (m/m), one of the lowest monthly (December) growth paces over the past decade.

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The Indonesian government - through its Finance Ministry - cut all ties with US multinational banking and financial services firm JP Morgan Chase after the latter released a report that allegedly "disturbs Indonesia's financial stability". In November 2016 JP Morgan's emerging markets equity strategists double downgraded Indonesia from overweight to underweight without elaborating on the exact motives. The report only stated that emerging markets' risk premiums are plagued by the rising yield of the benchmark US 10-year treasuries.

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