There is major concern that Indonesia's benchmark Jakarta Composite Index will continue to move deeper in red territory on Tuesday (06/02). Yesterday, on the first trading day of the week, the index had already fallen 0.59 percent to 6,589.68 points tracking Wall Street and European markets on Friday that went down amid concerns over sharply rising interest rates (with US 10-year bond yields reaching a four-year high).
Overnight, on Wall Street, the weak performance continued, or in fact, intensified. The Dow Jones Industrial Average plunged a whopping 4.6 percent, closing at 24,346 points. The S&P 500 and Nasdaq fell 4.1 percent and 3.8 percent, respectively. If we add the losses on Friday, then the Dow Jones has tumbled more than 1,800 points, hence erasing all of its 2018 gains.
The correction is, however, in line with many analysts' forecasts. After a sustained period of rising stocks - supported by ultra loose monetary policies in big economies - a correction is bound to occur. And the sharper the rise, the sharper the correction. The big question was, however, when this correction would take place.
Several inter-related issues in the USA now seemingly made this bubble burst: rising expectations of more aggressive monetary tightening by the Federal Reserve, sharply rising US bond yields, and expectations of rising US inflation (caused by a surge in US jobs growth in January 2018).
These circumstances gave rise to big losses in US and European stock markets on Monday and therefore Asian markets, including Indonesia, are expected to remain under big pressure on Tuesday. Indonesia's benchmark Jakarta Composite Index is still near record high territory and therefore vulnerable to significant profit taking.
Meanwhile, the Indonesian rupiah is also under heavy pressure amid US dollar strength after US data showed wages rose at their fastest pace in more than 8.5 years. On Monday Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.52 percent to IDR 13,498 per US dollar. Pressures on the rupiah continued on Tuesday (06/02) with the Indonesian currency sliding 0.35 percent to IDR 13,567 per US dollar (by 08:25 am local Jakarta time) according to the Bloomberg Dollar Index.
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia