Overnight, stocks on Wall Street had been plagued by a sell-off that continued in Asia. On Tuesday (24/04) the Dow Jones Industrial Average lost 1.74 percent, the S&P 500 fell 1.34 percent, while the Nasdaq Composite tumbled 1.68 percent.

Key factors behind this weak performance of Wall Street are:

(1) the ten-year US treasury note yield touching beyond the psychological boundary of 3 percent,
(2) Caterpillar Chief Financial Officer Bradley Halverson's statement that the company expects "steel and other commodity costs to be a headwind all year",
(3) disappointing guidance from key iPhone suppliers is causing concern over Apple shares (there emerged fears that global demand for smartphones that rely on their chips is shrinking rapidly).

Besides the rising US treasury yields, rising expectations of four Federal Reserve interest rate hikes in 2018 (instead of three hikes as assumed earlier) contributes to low risk appetite in markets. Indonesia is particularly vulnerable to a "flight to safety" as the country has among the largest exposures to foreign portfolio holdings. Foreign investors held IDR 861.02 trillion (approx. USD $62 billion) worth of Indonesian government bonds, equivalent to 39 percent of the total, as of 24 April 2018. A total of IDR 12.32 trillion worth of Indonesian bonds and stocks were sold in the three consecutive trading days to Tuesday.

This is also why the rupiah has been under severe pressure since late last week. On Tuesday (24/04) Bank Indonesia confirmed that it has been intervening in markets (by buying bonds and selling foreign currency) to defend the rupiah. Intervention led to solid rupiah appreciation on Tuesday but the following day the Indonesian currency weakened further by 0.23 percent to IDR 13,921 per US dollar (Bloomberg Dollar Index). The weak rupiah also gives rise to expectations of an interest rate hike at Bank Indonesia's May policy meeting. At the April meeting Bank Indonesia officials had already showed a more hawkish tone.

The central bank of Indonesia also urged companies on Wednesday to hedge their foreign exchange needs beyond the minimum requirements. This would mitigate risks of further capital outflows from Southeast Asia's largest economy.