In line with expectations, the Federal Reserve raised its benchmark interest rate by 25 basis-points to the range of 0.75 - 1.00 percent on Wednesday (15/03). It was the Fed's third rate hike in the past 15 months. As this hike had already been expected by basically all market participants it was more important to learn the Fed's stance on the pace and number of further rate hikes in 2017. On this matter Fed Chief Janet Yellen remained rather dovish, saying any further hikes in 2017 would be gradual. Wall Street now expects to see two more hikes in 2017.

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Ahead of the Federal Reserve meeting (14-15 March) investor sentiment remains subdued with thin trade in Asia's stock markets. Most, if not all, market participants expect the Fed to raise its benchmark Fed Funds Rate by 25 basis points supported by recently strong US jobs reports. The main questions now are whether the US rate hike is already priced in (in markets) or will we see big (yet temporary) capital outflows from emerging markets, including Indonesia? And secondly, will the Fed raise its interest rate environment faster than expected in the remainder of 2017?

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The central bank of Indonesia (Bank Indonesia) is also among the many institutions or market participants that expect the Federal Reserve to raise its Fed Funds Rate by 25 basis points at the coming Federal Open Market Committee (FOMC) meeting (14-15 March 2017). This move should put some temporary pressure on the Indonesian rupiah (as Indonesia will most likely see capital outflows) and therefore Bank Indonesia sees few to none room for additional monetary easing in Southeast Asia's largest economy in the remainder of this year.

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Ahead of looming higher interest rates in the USA, Indonesia's financial authorities seem confident that the impact of tightening US monetary policy on Indonesia's capital markets will be controlled as Indonesia's economic fundamentals are solid, while the nation's central bank (Bank Indonesia) and government are ready to step in to stabilize the rupiah exchange rate or the pace of capital flows, if needed.

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Indonesia's benchmark Jakarta Composite Index fell 0.32 percent to 5,391.21 points on Friday (03/03), while the Indonesian rupiah depreciated 0.19 percent to IDR 13,383 against the US dollar (Bloomberg Dollar Index). The performance of Indonesian stocks and the currency was in line with the performance of its counterparts in Asia. Asian shares were tracking losses on Wall Street overnight where profit-taking kicked in as US indices have been in rally-mode since Donald Trump won the presidential election in November 2016.

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Indonesia's benchmark Jakarta Composite Index (IHSG) surged 1.06 percent to 5,421.54 points shortly before closing on Thursday (02/03) as most Asian stock indices were in the green zone, lifted by the performance of Wall Street overnight. Indonesian stocks were actually the best performing stocks across Asia today. To explain why Indonesian stocks performed so well today, we need to look first at US stocks' performance overnight. It is all related to Trump's latest speech.

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Despite US dollar strength amid promised tax cuts in the USA and looming higher US interest rates, the Indonesian rupiah is not expected to depreciate as much as its Asian counterparts according to the DBS Bank. On Wednesday (01/03) the rupiah weakened 0.19 percent to IDR 13,363 per US dollar (Bloomberg Dollar Index). So far this year, however, the rupiah has strengthened nearly one percent against the greenback.

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Based on the minutes of the Federal Reserve's January policy meeting the US central bank will have a cautious approach when it comes to interest rate hikes. Fed officials agreed that a rate hike should occur fairly soon, perhaps as soon as March 2017, but only in case US jobs and inflation data are in line with expectation. This outlook led to a weakening US dollar as well as stocks as investors had been anticipating a more "hawkish" tone from Fed officials.

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The Indonesian rupiah is appreciating against the US dollar on Monday (06/02). Based on the Bloomberg Dollar Index, the rupiah had appreciated 0.13 percent to IDR 13,325 per US dollar by 12:15 pm local Jakarta time. It is assumed that optimism about Indonesia's improving economic fundamentals in combination with rebounding commodity prices and slower-than-expected US economic growth supports the currency of Indonesia. Meanwhile, other Asian emerging market currencies are also appreciating against the greenback.

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The International Monetary Fund (IMF) is optimistic about economic growth of Indonesia in the foreseeable future. In its latest report the Washington-based institution says Indonesia's solid economic policies and increased household consumption support strong growth. The stronger rupiah and low inflation have caused people's purchasing power to strengthen. This is a major positive boost for the economy as household consumption accounts for more than 55 percent of total economic growth in Southeast Asia's largest economy.

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Negative market sentiments, especially originating from within Indonesia, made investors shy away from Indonesia's main stock index (IHSG) on Monday (10/06). Similar to last Friday, when the index fell 2.70 percent, foreign investors continued to sell large proportions of their Indonesian stock portfolios. The index lost 1.81 percent today as investors are concerned about the current state of Indonesia's economy. Other major indices of Asia were mixed but with a strengthening tendency, despite weak data from China.

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Indonesia's main stock index (IHSG) was mixed on Tuesday's trading day (04/06) as negative market sentiments were still felt after yesterday's tumble (inflicted by Indonesia's April trade deficit). Foreigners continued to sell parts of their Indonesian stock portfolios causing the index to fall below the psychological boundary of 5,000 points, which also meant that it went into oversold territory. But the rise of the Yen, thus supporting Asian indices, in combination with positive openings in Europe made the IHSG rise in the end.

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Asian stock markets were mixed on Thursday (30/05). Particularly Hong Kong's Hang Seng Index (HSI) was negatively influenced by Wednesday's falling stock indices in Europe and the USA. In this context, Indonesia's main index (IHSG) was hit as well and fell 1.37 percent to 5,129.65 points. Moreover, the continuing decline of the IDR rupiah makes market participants less enthusiastic to purchase Indonesian stocks. Foreigners were also anxious to sell part of their stock portfolios.

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The upward movement of American and European stock indices on Tuesday (28/05) made a good impact on Indonesia's main index (IHSG) on Wednesday (29/05). Despite Asian markets being mixed and the Hang Seng Index (usually the reference point for Asian indices) falling, the IHSG succeeded in surpassing the next psychological boundary at 5,200 points. Overall, foreign investors recorded a net sell but it was offset by a net buy in a number of big caps: Perusahaan Gas Negara, Jasa Marga, Indo Tambangraya Megah and United Tractors.

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Although the stock markets of the USA and England were closed on Monday (27/05), strong European and Asian indices indicated that market participants were back in business. This also applied to the main stock index of Indonesia (IHSG), which regained the points it had lost on Monday. A number of blue-chips were chased by investors: Astra International, Unilever Indonesia, Lippo Cikarang and Semen Indonesia. Foreigners were particularly interested in stocks of Bank Mandiri, Bank Pembangunan Daerah Jawa, and Waskita Karya.

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The weak stock indices in Europe and USA at the end of last week had a negative impact on stock indices in Asia on Monday (27/05/13), including Indonesia's main stock index (IHSG). Investors rushed to reduce their stock portfolios, which resulted in an 1.36 percent fall to 5,085.14 points. At the end of last week, the IHSG had formed a green candlestick but today there were no continued positive signals as the market lacked positive sentiments. But a number of rising Asian indices and the positive openings of European stock indices managed to support the IHSG a bit.

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Various negative sentiments made investors decide to engage in profit taking today (23/05). As Indonesia's main stock index (IHSG) had already reached the overbought area, it is highly susceptible of profit taking in case some negative news is released. But this time there were quite a lot of matters that made a negative impact: weak American indices on Wednesday (22/05) responding to the FOMC meeting, a spike in Japan's government bond yields, and Chinese manufacturing data that seems to indicate a contraction.

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Although Indonesia’s government stresses the need to relieve pressure on the state budget (by raising the price of subsidized fuel next month), it plans to allocate an additional IDR 16.1 trillion (USD $1.65 billion) to this year’s fuel subsidy budget. The additional allocation, which covers fuel, LPG and vegetable fuels, will raise government expenditure on fuel subsidies to IDR 209.9 trillion (USD $21.50 billion) from the IDR 193.8 trillion drafted in the original 2013 state budget (APBN 2013). Total energy subsidies will grow to IDR 309.9 trillion this year.

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American stock indices that refrained from staying in the green zone at the end of Monday's trading session (20/05/13) made market participants less enthusiastic to invest in Asian stocks. Indonesia's main stock index (IHSG) was one of the indices that felt this impact as a lack of positive sentiments blocked it from rising to another record high level. Investors were also concerned about profit taking because the index had reached the overbought level. When European indices opened weak on Tuesday it increased downward pressures on the IHSG.

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Various reasons explain why Indonesia's main stock index (IHSG) managed to reach another record high on Monday (20/05/13) at 5,214.98 points, an 1.35 percent gain. Foreigners were back chasing Indonesian stocks (particularly blue chips), Asian indices were up (led by Hong Kong's Hang Seng Index), the listing of Bank Nationalnobu (NOBU) which gained 14.67 percent on its first trading day, positive European openings, and the positive response towards Indonesia's new Finance minister, Chatib Basri, regarded as an independent policy maker.

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