Indonesia Hit by Successive Bad News in Early July, IHSG and Rupiah Under Threat

Indonesia’s financial markets are expected to face continued pressure today. In the bond market, the yield on 10-year Government Securities (SBN) eased to 7.153% in yesterday’s trading, down from 7.167% the previous day. Falling yields indicate that SBN prices are strengthening as they are sought after by investors. On Wall Street, US stock markets weakened in trading on Wednesday, or early Thursday Indonesian time. The blue-chip Dow Jones Industrial Average (DJIA) touched a new record high before losing momentum towards the close, while the Nasdaq Composite was pressured by a sell-off in chipmaker stocks. The 30-stock index fell 13.96 points, or 0.03%, to close at 52,305.24. The Dow had earlier surged to a new intraday record of 52,742.66 before reversing course after Caterpillar, a company benefiting from the artificial intelligence (AI) trend, plunged nearly 7%. Meanwhile, the S&P 500 fell 0.22% to close at 7,483.23, and the Nasdaq Composite weakened 0.66% to 26,040.03. The tech-heavy index was pressured after investors took profits on semiconductor stocks, following a sector surge of more than 80% in the first half of 2026. Micron shares plummeted more than 10%, although they are still up over 260% year-to-date. Sandisk also slumped more than 10% but remains up over 750% in 2026. Nvidia and Broadcom fell about 1% and 2%, respectively. “The Great Rotation strategy continues into the third quarter. The boring blue-chip stocks in the Dow Jones continue to attract fund flows from profit-taking in technology stocks,” said Jeff Kilburg, founder and CEO of KKM Financial. “This condition is very healthy and shows that the stock market rally is broadening, supporting the bullish trend now entering its fourth year,” he added. The moves came after the major indices closed the first half of 2026 with solid performance. In the first six months of the year, the Dow rose 8.9%, its best first-half performance since 2021. The S&P 500 gained 9.6%, while the Nasdaq rose 12.8%. The small-cap Russell 2000 index surged nearly 22%, its best first-half performance since 1991. However, gains in some large-cap technology stocks helped limit the Nasdaq’s decline. Meta Platforms shares soared nearly 9% after the company announced it would launch a cloud computing business and sell excess computing capacity, a move expected to boost revenue. Microsoft and Apple shares rose 3% and nearly 2%, respectively. Market participants are also monitoring developments from the Federal Reserve, after Fed Chair Kevin Warsh delivered a speech at a European Central Bank (ECB) conference in Portugal. Although he gave no indication of the monetary policy direction for this month’s meeting, Warsh stressed that “we have seen that prices are still too high.” Entering the second day of the second half of 2026, Indonesia’s financial markets will face a number of sentiments, ranging from economic data to the speech by Fed Chair Kevin Warsh. The trade balance deficit, the collapse of the Manufacturing PMI, rising inflation, and the Fed’s still-hawkish stance could put pressure on the rupiah and the IHSG today. Iran and the United States ended a round of indirect talks in Doha without significant progress towards long-term peace. The two-day negotiations remained focused on shipping in the Strait of Hormuz and financial incentives for Iran, rather than the nuclear programme restrictions that triggered the conflict. US President Donald Trump claimed the Iranian denuclearisation process was going well. However, several sources said the nuclear issue was not discussed at all as the meeting was only technical in nature. The two sides also did not meet directly and only communicated through mediators from Qatar and Pakistan. Meanwhile, the status of the Strait of Hormuz remains uncertain even as ship traffic begins to recover. Iran insists on gaining recognition for its control over the strait and plans to start imposing tariffs on passing ships from mid-August. Trump’s statements, which dampened the risk of a new war, caused oil prices to fall to their lowest level in four months. Indonesia’s trade balance recorded a deficit for the first time in six years. The Central Statistics Agency (BPS) announced that Indonesia’s trade balance suffered a deficit of US$1.61 billion in May 2026. The deficit occurred because the export value was recorded at US$23.20 billion, while imports reached US$24.81 billion. This is the first deficit since April 2020, when the trade balance was also in deficit by US$0.38 billion. This latest record breaks Indonesia’s 72-month trade surplus streak that had been running since May 2020. Looking further back, the May 2026 deficit is also the deepest since April 2019, when the trade balance recorded a deficit of US$2.33 billion. Imports increased by 22.16% compared to May 2025. BPS recorded oil and gas imports of US$4.51 billion, an increase of 70.78% year-on-year. Non-oil and gas imports were US$20.30 billion, up 14.69%. The annual import growth was driven by non-oil and gas imports, which contributed 12.95%. Coordinating Minister for Economic Affairs Airlangga Hartarto revealed that the surge in global oil and gas prices was the main cause of Indonesia’s trade balance deficit. The rise in energy prices pushed up the value of oil and gas imports, ultimately reversing the country’s trade balance position.