Indonesia's benchmark stock index (Jakarta Composite Index) was one of the few Asian indices that bucked the trend on today's trading day (02/11). Whereas most Asian indices, led by Japanese shares, fell on concern about persistent manufacturing contraction in China, the Jakarta Composite Index managed to rise 0.22 percent to 4,464.96 points. Meanwhile, oil prices dropped and the US dollar extended losses against most emerging market currencies.
China's October purchasing managers' index (PMI) was unchanged from the preceding month's 49.8 (a reading below 50.0 indicates contraction in manufacturing activity), China's state Statistics Office said. Meanwhile, China's final Caixin manufacturing PMI was at 48.3 in October, yet another sign of a stalling economy. Although still contracting, the Caixin reading was better than the 47.2 reading in September.
Japanese stocks led declines in Asia, falling from a 2.5 month high, as the central bank refrained from adding more stimulus measures to boost the country's economic growth.
Indonesia's manufacturing activity also continued to contract in October. According to the latest survey from Nikkei, Indonesia's October manufacturing purchasing managers' index (PMI) stood at 47.8, the 13th straight month of contraction. But, on a positive note, the contraction improved from the previous month.
Good news was that Indonesia's inflation eased to 6.25 percent (y/y) in October 2015. In the last two months of 2015 we expect to see a sharper decline as the impact of the subsidized fuel price hike in November 2014 will vanish from the annual inflation figure. Controlled inflation provides hope that Indonesia's central bank will soon cut its relatively high BI rate (currently at 7.50 percent), hence giving room to an acceleration of economic activity. However, given the fragile rupiah (ahead of further monetary tightening in the USA, we doubt that Bank Indonesia will soon cut its benchmark rate).
Jakarta Composite Index (IHSG):
Most Asian markets are also believed to be affected by profit taking. In October, markets recovered from a very weak third quarter on speculation that the Federal Reserve will postpone raising US interest rates until next year. However, in a statement after the latest Federal Reserve meeting (27-28 October), the US central bank seems to open the door to a December Fed Fund Rate hike. As such, we could see another round of capital outflows from emerging markets in the weeks ahead.
However, a US rate hike is data-dependent and as US consumer spending only rose 0.1 percent in September, below market estimates, a December rate hike may be unlikely. As a result the US dollar weakened against most emerging currencies today. The Indonesian rupiah appreciated 0.11 percent to IDR 13,669 per US dollar (Bloomberg Dollar Index) on Monday (02/11).
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.32 percent to IDR 13,682 per US dollar on Monday (02/11).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia