It is expected to be another difficult day for Indonesian stocks and the rupiah as there are few to none positive market sentiments that can support these assets on today’s trading day. Wall Street closed lower on Thursday (23/07) for the third consecutive day on disappointing financial results of several big companies, dragging down indices in the East. Commodity indices continue to fall (oil returning to bear market on resilient US output and rising OPEC supply). Meanwhile, sharp rupiah depreciation makes investors nervous.
By 11:16 am local Jakarta time, Indonesia’s benchmark Jakarta Composite Index had fallen 1.05 percent to 4,851.12 points, while the rupiah had depreciated 0.28 percent to IDR 13,458 per US dollar according to the Bloomberg Dollar Index dollar.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.40 percent to IDR 13,448 per US dollar on Friday (24/07).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
Continued sharp rupiah depreciation impacts negatively on Indonesian stocks as the weakening rupiah results in vaporized stock gains, hence resulting in foreign net selling on today’s trading day.
After turmoil in China’s stock market and the Eurozone has faded (after debt-ridden Greece finally managed to reach an agreement with its international creditors thereby averting a Greek default and exit from the Eurozone), markets are now again turning their focus on the timing of higher US interest rates. Recent positive macroeconomic data from the USA strengthens expectation that the Federal Reserve will raise its key interest rate before the end of the year. Further monetary tightening in the USA should lead to capital outflows from emerging markets, including Indonesia. However, it remains unclear to what extent emerging markets have already absorbed the effects of higher US interest rates.
Weak corporate earnings and outlooks from several large US companies, including American Express, Caterpillar and 3M contributed considerably to declining US stocks (for a third day in a row) and therefore contributed to generally falling stocks across Asia on Friday.
Meanwhile, trading activity at the Indonesia Stock Exchange is still not back on track after the Idul Fitri holiday (16-21 July). Many people extend their holiday until the end of this week.